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how to conduct a peer review under the aicpa practice-monitoring programs

DAY 2hcrpm

How to Conduct a Peer Review Under the AICPA Practice-Monitoring Program–Day 2

Participant’s Manual

By Carl Mayes, CPA LaShaun King, CPA

HCRPM GS-5000100-0413-0A Revised: May 2014

Notice to Readers

How to Conduct a Peer Review Under the AICPA Practice-Monitoring Program is intended solely for use in continuing professional education and not as a reference. It does not represent an official position of the American Institute of Certified Public Accountants, and it is distributed with the understanding that the author and publisher are not rendering legal, accounting, or other professional services in the publication. This course is intended to be an overview of the topics discussed within, and the author has made every attempt to verify the completeness and accuracy of the information herein. However, neither the author nor publisher can guarantee the applicability of the information found herein. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Copyright © 2014–2015 by

American Institute of Certified Public Accountants, Inc.

New York, NY 10036-8775

All rights reserved. For information about the procedure for requesting permission to make copies of any part of this work, please email [email protected] with your request. Otherwise, written requests should be mailed to the Permissions Department, AICPA, 220 Leigh Farm Road, Durham, NC 27707-8110. Course Code: 736501 HCRPM GS-0414-0A Revised: May 2014

Use of Materials This course manual accompanies all formats in which the course is offered, including self-study text, self-study online, group study, in-firm, and other formats, as applicable. Specific instructions for users of the various formats are included in this section. Continuing Professional Education (CPE) is required for CPAs to maintain their professional competence and provide quality professional services. CPAs are responsible for complying with all applicable CPE requirements, rules, and regulations of state licensing bodies, other governmental entities, membership associations, and other professional organizations or bodies. Professional standards for CPE programs are issued jointly by the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA) to provide a framework for the development, presentation, measurement, and reporting of CPE programs. These standards are entitled Joint AICPA/NASBA Statement on Standards for Continuing Professional Education Programs (CPE standards), and are available as part of the AICPA’s Professional Standards three-volume set, either in paperback or as on online subscription through the AICPA’s Online Professional Library. Review Questions for Self Study Participants The CPE standards require that self study programs include review questions (also known as feedback questions) that provide feedback to both correct and incorrect responses. Note that these questions are provided only as learning aids and do not constitute a final examination. Requirements for Claiming and Receiving CPE Credit CPE standards place responsibility on both the individual participant and the program sponsor to maintain a record of attendance at a CPE program. CPAs who participate in only part of a CPE program should only claim CPE credit for the portion that they attended or completed. CPE participants must document their claims of CPE credit. Examples of acceptable evidence of completion include:

• for group and independent study programs, a certificate or other verification supplied by the CPE program sponsor.

• for self-study programs, a certificate supplied by the CPE program sponsor after satisfactory completion of an examination.

Participants in group study and other live presentations will receive a completion certificate from the program sponsor. CPE program sponsors are required to keep documentation on programs for five years, including records of participation. All self-study participants must complete the exam within one year of date of course purchase in order to receive a certificate indicating satisfactory completion of the CPE program. When purchased as a self-study course in text format, the exam is located in the

Examination section at the end of the course manual.

The course code number for both the self study exam and the self study evaluation can be found in the Examination’s introductory material.

The self study examination answer sheet and evaluation form are included with your course materials. Participants may complete them online or use the paper forms. If using the paper forms, you should mail the original answer sheet and course evaluation form in the pre-addressed envelope. Photocopies or faxes of the original forms are not acceptable. The paper grading process averages five to seven business days from date of receipt. During peak reporting periods (June, September. and December), the processing time may be 10 to 15 business days.

Alternatively, self-study participants may choose to complete the exam and course evaluation online at https://cpegrading.aicpa.org. Participants must provide the unique serial number printed on the Answer Sheet.

Participants must achieve a minimum passing grade of at least 70 percent to qualify for CPE credit. o Upon achieving a passing grade, participants will receive a certificate displaying the

number of CPE credits earned based on a 50-minute hour, in compliance with CPE standards. If you do not achieve a passing grade and you mailed in the exam, you will

not receive any notification. If you do not achieve a passing grade and you completed the exam online, the

website will notify you of your score. Self study online participants may print the completion certificate after successful

completion of the exam. Participants who do not pass the exam within three attempts must mail in the answer key.

Program Evaluations The information accumulated from participant evaluation forms is an important element in our continual efforts to provide high quality continuing education for the profession. Participants in group study and other live presentations should return their evaluation forms prior to departing their program sessions. Self-study participants should either mail the completed evaluation form along with the examination answer sheet in the envelope provided, or complete the course evaluation online. Your comments are very important to us. Customer Service For help and support, including information on refund claims and complaint resolutions, please call AICPA Member Service at 1-888-777-7077, or visit the online Help page of the AICPA Store at www.cpa2biz.com.

How to Conduct a Peer Review Under the AICPA Practice-

Monitoring Program– Day 2

Table of Contents

Chapter 8 - System Review Case Study ...................................................................... 1

Attachment A: Flacco and Rice 2011 Information Required for Scheduling Reviews/Background Form ........................................................................................ 35

Attachment B: List of Engagements .......................................................................... 50

Attachment C: Flacco and Rice List of Personnel .................................................... 52

Attachment D: PRP Section 4400 Quality Control Policies and Procedures Documentation Questionnaire for Firms With Two or More Personnel ................. 53

Attachment E: PRP Section 4750 Managing Partner/Chief Executive Officer Interview ....................................................................................................................... 95

Attachment F: Engagement Selection ....................................................................... 99

Attachment G: PRP Section 4700 Staff Interview Questionnaire 1 & 2 ........ 100, 105

Attachment H: PRP-20700 (No Answers) ................................................................ 110

Attachment I: Summary of No Answers .................................................................. 111

Attachment J: Representation Letter ...................................................................... 112

Copyright 2014–2015 AICPA ∗ Unauthorized Copying Prohibited i

Chapter 8

System Review Case Study

Scenario Introduction

You (James P. Newman) are an active AICPA member and partner with the small 4-partner CPA firm of Goode, Newman and Associates, LLP (GNA) located in Philadelphia, PA where you are licensed and have been practicing for the past 10 years. You have current experience in performing governmental, A-133, not-for-profit, non-carrying broker dealer, and construction contractor audit engagements. You also have current experience with various other industries and with reviews and compilations under SSARS. You and your firm have not received any communications of limitations/restrictions or allegations/investigations from regulatory bodies. You keep up to date with CPE requirements in accordance with AICPA and state board accountancy standards and those relevant to the industries in which you practice. Within those requirements, you have taken the following accounting, auditing, and quality control standards related CPE: 16 CPE hours within the past year and 48 hours over the past 3 years. You have overall responsibility for GNA’s quality control functions, including participation in GNA’s internal inspection process which relies heavily on the guidance and relevant checklists provided by the AICPA Peer Review Program. You also served as the primary contact for the firm’s previous 2 external System Reviews, the most recent of which was performed for the year ended December 31, 20x3, on which the firm received a pass report rating. You just recently completed the 2-day “How To” course and entered your resume into the AICPA peer reviewer database to advertise your availability to perform your first review. Jebediah “Jeb” Flacco, the quality control partner of Flacco & Rice, LLP in Baltimore, MD is planning for their firm’s upcoming peer review and looking for a new reviewer since his previous reviewer retired. Jeb contacts you in April 20x5 and asks you to perform the firm’s next peer review for the period ended December 31, 20x4. Jeb remembered you from when you were contracted by the firm to perform pre-issuance reviews on several engagements when one of Flacco & Rice, LLP’s partners was unavailable for an extended absence in late 20x2. The firm’s peer review is administered by the Maryland Association of CPAs (as we assume the non-carrying broker-dealer engagement is for a period prior to the requirement that it be performed in accordance with PCAOB standards). .

Copyright 2014–2015 AICPA ∗ Unauthorized Copying Prohibited

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Pre-Acceptance Considerations

Question 1

Discuss the peer reviewer and team/review captain qualifications. Based on the information presented, do you meet the qualifications to act as team/review captain on the peer review of Flacco & Rice, LLP for the year ended December 31, 20x4?


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Question 2

Does the fact that you have performed pre-issuance reviews for the firm result in an independence impairment?

Question 3

What are some inquiries that you would make prior to making an acceptance decision?


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Firm Response 3

During the pre-acceptance discussions with Jeb Flacco, you find out the following information about Flacco & Rice, LLP (firm): The firm has indicated that they have one office with 40 total professional personnel including 4 A&A partners, 4 tax partners, 3 A&A managers, 6 tax managers, 7 full time A&A staff, and 16 per diem personnel who only work for the firm during busy season and only perform tax returns. The firm’s accounting/attest and audit (A&A) practice consists of about 14,000 hours and covers various industries including audits of governmental entities (including those subject to OMB Circular No. A-133), employee benefit plans (ERISAs), construction, and not-for profits, and the firm’s partners have extensive experience in these areas. The firm also performs review and compilation engagements under SSARS. Their practice is very similar to GNA’s practice; however, you do not have any experience with ERISA engagements. The firm has not been through any mergers, acquisitions, or divestitures, or any unusual business events in recent years. As with most CPA firms in the region, there are financial challenges because of the general economic downturn in the past few years. However, the firm is stable with low to moderate growth. The firm’s prior peer review for the period ended December 31, 20x1 was a pass report with no FFCs. The firm wants to have their peer review performed sometime in May 20x5.

Question 4

What should be the ordinary due date for the firm’s peer review?

Question 5

What type of peer review would the firm need (System or Engagement Review) and why?


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Question 6

Based upon the information provided above, are you qualified to perform the review as the team captain and be the only team member? Why or why not?

Consideration

You decide to accept the peer review engagement and, after verifying peer reviewer qualifications, you add Susan N. Spector as a review team member. Susan is a newly accepted partner in your firm who specializes in governmental, not-for-profits, 401(k) and ESOP ERISA engagements, and healthcare engagements and has been a team member on peer reviews in the past. You execute an engagement letter with the firm and solidify arrangements for traveling to the firm’s office including establishing a commencement date of May 21, 20x5 and exit conference date of May 23, 20x5.


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Planning Considerations

After confirming that the Maryland Association of CPAs has been notified about the arrangements for the review and that the firm has received acknowledgment of that information, you discuss planning considerations with the firm’s leadership. Based upon your discussions, you learn that the firm will make all engagements available to the review team and that the firm is not requesting to exclude any functional areas from the scope of the review. The firm understands their responsibilities with regard to the representation letter and they are not aware of any non-compliance, communications from regulatory agencies, restrictions or limitations. In the prior year, the firm had a Department of Labor (DOL) review of one of its non-403(b) Defined Contribution ERISA engagements that resulted in no findings. The firm is not requesting a due date extension or change in year-end and the firm and all of the firm’s partners are appropriately licensed. You intend to utilize the standardized AICPA peer review questionnaires and checklists throughout the review. The firm has designated Jeb Flacco as their liaison to the review team, as he is responsible for developing and maintaining the firm’s quality control policies and procedures. To gain more insight into the design of and compliance with the firm’s system of quality control, you will interview Mr. Flacco along with other selected appropriate personnel.

Question 1

What materials should you request from the firm to allow you to perform the necessary planning for this peer review?


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Firm Response

Jeb Flacco provides you with a copy of the Information Required for Scheduling Form (background form) which appears at Attachment A. Mr. Flacco also provides you with a copy of their engagement listing, which appears at Attachment B, and a list of firm personnel which appears at Attachment C. The firm provides you with the prior peer review report, acceptance letter and the firm’s monitoring documentation which are not included in these materials. The quality control questionnaire will be provided to you at a later time. Question 2

Compare the firm’s responses appearing in the background form to the firm’s personnel listing and engagement listing. What questions, if any, do you have for the firm?

Question 3

Review the engagement listing. Which, if any, of the engagements appearing on the list should not be included within the scope of the review?


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Firm Response

Jeb Flacco has indicated that the engagements identified by the reviewer were mistakenly included in the engagement listing and should be excluded from the scope of the review. Question 4

Jeb Flacco provides you with the firm’s monitoring documentation since their last peer review. No significant issues were identified. The documentation indicates that the firm performed monitoring over elements of quality control, including inspections and pre-issuance reviews, during 20x2 and 20x3. However, while all other monitoring procedures were performed during 20x4, the firm did not perform an inspection. How should this issue be treated by the reviewer?

Summary Review Memorandum (SRM) and Team Captain Checklist (TCC)

On the SRM, use the information provided thus far to complete the “Firm Description” section and the “Composition of Review Team” section. On the TCC, use the information provided thus far to complete questions 1 through 5.


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Review of Quality Control Policies and Procedures

When planning the review, the reviewer should obtain an understanding of the firm’s quality control policies and procedures with respect to each of the quality control elements. This understanding is primarily obtained by reviewing the firm’s quality control document and the quality control policies and procedures questionnaire which was completed by the firm. You have provided the firm with PRP Section 4400, Quality Control Policies and Procedures Documentation Questionnaire for Firms with Two or More Personnel. The completed questionnaire appears at Attachment D. Read through the questionnaire in order to identify potential issues with the design of the firm’s system of quality control. Question 1

Based upon your review of the questionnaire, what matters, if any, should be clarified early in the peer review’s performance and/or warrant consideration as a potential matter for further consideration?


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Firm Response

The firm answered question B.7 “no” by mistake, and they confirmed that they obtain written confirmation of independence upon hire and on an annual basis. The firm confirmed that it meant to select “yes” for question C.5. The firm indicated that they do not participate in any specialized industries because they took “specialized” to mean “unique to the firm”. The firm has established training requirements for construction, ERISA and governmental engagements and ensures that appropriate acceptance and continuance procedures are followed. When asked about Engagement Quality Control Review, the managing partner noted that all engagements are reviewed by the partner on that engagement, and indicated that review by personnel other than those on the engagement is not deemed necessary. Question 2

Based upon the firm’s response, which issues identified on the quality control policies and procedures questionnaire warrant further consideration on a matter for further consideration form?


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Guidelines for Review of QCPP (Guidelines)

Using the firm’s Quality Control Policies and Procedures Questionnaire, complete those sections of your Guidelines checklist (PRP 4600) which pertain to the design of the firm’s system of quality control.

Note: Some questions in this checklist cannot be completed until after compliance testing of functional areas is complete.


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Managing Partner/Chief Executive Officer Interview

In order to gain an understanding of management’s philosophy towards and support of the quality control initiatives of the firm, you provide Jeb Flacco, the firm’s managing partner, with PRP Section 4750, Managing Partner/ Chief Executive Officer Interview. The completed interview form appears at Attachment E. Question 1

Which of the managing partner’s responses, if any, warrant follow-up with the firm and how could those responses affect your understanding of the design of and compliance with the firm’s system of quality control?

Managing Partner Response

After following up with the managing partner, you confirmed that the firm only accepts engagements in the partners’ areas of expertise, and that while they do perform engagements in high risk industries, in the firm’s opinion those engagements were not deemed to represent “significant risk” to the firm. You also inquire whether the firm has any key elements of its system of quality control that reside outside of the firm, such as a joint venture or membership in an association. The managing partner responds that no such arrangements or membership exists. No other pertinent information was gathered.


On the SRM, use the information provided thus far to complete questions A-D in the “Planning and Performing the Review” section. On the Team Captain Checklist, use the information provided thus far to complete questions 6 and 7.


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Risk Assessment

Based upon the results of your initial assessment of the firm’s accounting and auditing practice and the design of its system of quality control, assess the risk associated with the review. Document the risk assessment on the Summary Review Memorandum under questions E–G in the “Planning and Performing the Review” section. Alternatively, you can attach the risk assessment matrix to support your response within the SRM.


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Engagement Selection

Based upon your risk assessment and the engagement listing provided by the firm, make your engagement selection and document under Planning and Performing the Review, questions J-K of the Summary Review Memorandum.

Question 1

Which engagements, if any, fall in the “must-select” category?

Question 2

Which type of engagement should be selected as the surprise engagement?


Attachment F. On the SRM, use the information provided in this attachment as well as the firm’s engagement listing to complete the remaining questions in the “Planning and Performing the Review” section and the “Population and Reviewed Statistics” section. Assume that you have requested that the firm complete engagement profiles for each of the engagements selected. On the TCC, use the information provided thus far to complete questions 8 and 9

.Refer to the engagement selection at Attachment F. On the SRM, use the information provided in this attachment as well as the firm’s engagement listing to complete Part III questions A and B. Assume that you have requested that the firm complete engagement profiles for each of the engagements selected. On the TCC, use the information provided thus far to complete questions 15 through 20 of Part II.


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Compliance Testing – Commencement and Staff

Interviews

On May 21, 20x5, you and your review team arrive at the reviewed firm’s office to commence fieldwork. You meet with Susan Spector to orient her to the firm’s Quality Control Policies and Procedures, instruct her on the manner in which the working papers will be prepared, explain the significant audit area approach, and assign responsibilities for functional area and engagement reviews. You have determined that you will perform all functional areas testing and will review the Single Audit, construction audit, non-carrying broker dealer and review engagements. Susan, the team member, will review the remaining engagements selected. You inform the firm of the selected surprise engagement upon your arrival. In order to provide corroborative evidence that certain policies and procedures have been communicated, you select two personnel for Staff Interviews. The staff interviews are conducted in live one-on-one sessions. The results of the interviews are documented on the Staff Interview Questionnaires appearing at Attachment G. Question 1

Discuss how interviews of personnel can be used to test the six elements of quality control.


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Question 2

On Attachment G, which of staff’s responses, if any, warrant further consideration with regard to the firm’s compliance with their quality control policies and procedures? Discuss how the response conflicts or supports other responses provided in the peer review documents introduced thus far.

Question 3

How should this situation be documented for discussion with the firm?


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Compliance Testing – Functional Areas

Question 1

What are examples of functional area compliance tests? Discuss how each procedure can be used to test the elements of quality control.


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Question 2

Refer to the Guidelines for Review of Quality Control Policies and Procedures for Firms with Two or More Personnel. Determine to what degree the functional elements should be tested. Select and discuss the specific items to be tested including quantity, individuals, format/methodology, specific elements to be evaluated, and other elements that require consideration.


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Consideration

During functional area testing, there was nothing to indicate that the reviewer’s selections for functional area testing were not a representative cross section of the firm’s practice.

Guidelines for Review of QCPP (Guidelines) and Team Captain Checklist (TCC)

Based upon the sample sizes selected for functional area testing, complete the remainder of your Guidelines checklist (PRP 4600). Note that your reviews of personnel files, administrative files etc. did not uncover any matters which were not previously identified. On the TCC, use the information provided thus far to complete questions 1 through 4 and 10 through 11 of Part III.


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Compliance Testing – Engagements

You and the review team member perform the reviews of the selected engagements. The review team appropriately utilized all required checklists when reviewing engagements. As team captain, you are responsible supervising and reviewing the work of other members on the review team to the extent deemed necessary. You obtain the engagement checklists completed by the review team member and review her work. Refer to Attachment H for one of the engagement checklists completed by the review team member (Engagement Number 10014). Note: Only the “Explanation of ‘No’ Answers and Other Comments” section of the engagement checklist is provided for instructional purposes. Question 1

Evaluate the “no” answers identified by the review team member. Which “no” answers, if any, warrant follow up with the review team member and/ or the firm?


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Review Team Member Response

Question EB104 was answered “no” because the reviewer noted that the auditor’s report omitted the Management’s Responsibility for the Financial Statements” section, which is a requirement of the new clarified reporting model. After bringing this matter to the attention of the engagement team, the reviewer learned that the engagement team had accidentally deleted the “Management’s Responsibility” section from the final version of the report that was issued. Question A220 was answered “no” because the reviewer did not see any evidence that testing of related party transactions went beyond supporting the related party disclosure for the footnotes, as required by AU-C section 550. This occurred after discussing with the engagement team that the working paper with the new related party testing requirement was incorrectly named in the engagement file and the appropriate testing was performed. Question A235 was answered “no” because the reviewer did not see any evidence that required communications were made to those charged with governance. However, after bringing the matter to the attention of the engagement team, the reviewer determined that documentation of this communication had been accidentally included in the client permanent file. The reviewer subsequently reviewed the documentation noting no issues. Question A406 was answered “no” because, on the engagement profile provided by the firm, the firm indicated that this client had unpaid fees. However, when asked about this response, the engagement partner indicated that the profile question was answered in error and that all fees from this client had been collected before a report was issued. Based upon this discussion, you determine that questions A235, A220 and A406 appear to have been resolved by the review team and do not warrant further consideration. Question EB104 appears to warrant further discussion with the firm. You ask the review team member to more thoroughly document the information above on the relevant engagement checklist. Question 2

If applicable, how should a reviewer identify and document engagements that are not performed and/or reported on in conformity with applicable professional standards in all material respects?


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Question 3

For each engagement reviewed, the reviewer should conclude on the review by documenting whether anything came to the reviewer’s attention that caused the reviewer to believe that the engagement was not performed and/or reported on in conformity with applicable professional standards in all material respects. The reviewer should make this conclusion after the review of each engagement. The conclusion about the engagement should not be based on the pervasiveness to other engagements or lack thereof, but rather based on the assessment of the significance of the departure with professional standards relevant to that individual engagement. Refer to the “Summary of ‘No’ Answers” appearing at Attachment I. Evaluate the “no” answers noted on each individual engagement. Determine which, if any, engagements were not performed and/or reported on in conformity with applicable professional standards in all material respects.


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Question 4

How should you communicate to the reviewed firm instances in which you concluded that an engagement is not performed and/or reported on in conformity with applicable professional standards?


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Question 5

Which of the following automatically result from an engagement not performed and/or reported on in conformity with applicable professional standards in all material respects:

a. A matter b. A finding c. A deficiency d. A significant deficiency e. None of the above

Question 6

What further responsibility do you have regarding the reviewed firm’s actions with respect to engagements not performed in conformity with applicable professional standards in all material respects?


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Consideration

You expanded scope to include the reports of five additional 12/31/20x4 audit engagements, including two that were performed by Mr. Flacco. You noted no additional reporting issues. During the review of engagements, there was nothing to indicate that the selection of engagements did not represent a representative cross section of the firm’s practice. Also, the firm has indicated that they will recall, revise and reissue the report, which was not in conformity with applicable professional standards in all material respects.


On the SRM, use the information provided thus far to complete the “Specific Findings” section and the system review engagement statistics data sheet. On the TCC, use the information provided thus far to complete questions 11–14.


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Evaluating “No” Answers

Question 1

Consider the “no” answers identified during the review which appear on the Summary of “No” Answers at Attachment J. Determine which “no” answers warrant further consideration on a Matter for Further Consideration form. In conjunction with the Summary of “No” Answers, consider the following:

• For “no” answer # 1, the review team noted that SAS 115 communications were not properly made on the two audits partnered by Mr. Grummond, but that the communications were made on the other audits which were performed by other partners. Per Mr. Grummond, he was unaware of the requirement to communicate significant deficiencies and/ or material weaknesses with management and those charged with governance.

• For “no” answer # 2, after the review of the engagement was completed, the reviewed firm was able to produce the attorney letter, which had been erroneously added to the client’s permanent file. No issues with the letter were identified.

• For “no” answer # 3, the reviewer did not note this issue on any of the other audit engagements reviewed, and expanded scope and reviewed the financial statement titles for two additional audit engagements. The reviewer noted no further issues with the financial statement titles.

• For “no” answer # 6, written employee evaluations were required on engagements 10001, 10014 and 10026. Per the partners and managers on these engagements, evaluations were performed orally but were not documented.


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Completing a Matter for Further Consideration (MFC) Form

After identifying matters which warrant further consideration, document descriptions of the matters and all other relevant information on the MFC forms.


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Firm Responses to an MFC Form

The firm has provided the following responses:

• MFC # 1: “We agree with this matter. We have introduced a new checklist for partners reviewing engagements, and that checklist includes a step to verify that employee evaluations have been documented for engagements of 150 hours or more. We have also discussed the matter with the HR Manager who will obtain written semi-annual evaluations going forward.”

• MFC # 2: “We agree with this matter. We have introduced a new checklist for partners reviewing engagements, and that checklist includes a step for partners to verify that AU-C section 265 communications have been made and documented as required. In addition, this partner will attend training on AU-C 265.”

• MFC # 3: “We agree, but note that this matter was isolated to this one engagement.”

• MFC # 4: “We disagree.”

Question

Are the responses provided by the firm appropriate? Why or why not?


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Systemically Evaluate and Aggregate Matters

Based upon the information provided, determine the answers to the following questions. Question 1

Which matters (if any) warrant elevation to findings?

Question 2

Which findings (if any) warrant elevation to deficiencies?

Question 3

Based upon the responses above, how many FFC forms should be completed? What type of report should be issued?


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Completing a Finding for Further Consideration (FFC) Form

After identifying matters which represent findings, document the findings on FFC forms. Consideration The firm’s responses to the FFCs indicated their agreement with the findings and provided specific plans for implementation (including timing). There were no situations that required consultation with the Maryland Association of CPAs during the review. While the peer review identified two findings, the firm’s internal monitoring did not identify any significant issues. After discussing with the managing partner, you learn that the firm did not realize that their EQCR criteria were not appropriate and, as a result, they did not identify this as a significant issue. In addition, the firm noted that audits performed by Mr. Grummond had not been subject to internal inspections. At the exit conference, you discuss the nature of each MFC and FFC and the report rating. You recommend that the firm revise their quality control policies and procedures to require that all A&A partners are included within the scope of the firm’s internal inspection. You advise the firm that they should not publicize the review results until they have been accepted by the Maryland Association of CPAs, and you provide them with an anticipated date for issuance of the report and completion of the review.


On the SRM, use the information provided thus far to complete all remaining sections. On the TCC, use the information provided thus far to complete all remaining questions.


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Completing the Disposition of Matter for Further Consideration (DMFC) form

Complete the DMFC form to summarize the disposition of all MFCs to ensure that all MFCs have been addressed and to document how they have been resolved. Consideration

The DMFC should note both a disposition (providing further information on what was ultimately done with the MFC) and a short explanation (if applicable) for each MFC. The disposition and explanation is based on previous considerations of whether the related matter is significant, systemic, isolated, etc. Any explanations included on the DMFC are expected to be brief one or two word phrases, as noted in the DMFC form instructions. Any longer explanations supporting the reviewer’s conclusions should be documented on the MFC form itself. An MFC should not be noted as “cleared” on the DMFC unless the reviewer is able to conclude that the firm’s actions were appropriate subsequent to the preparation of the MFC form.


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Reporting

Question 1

Complete the peer review report:

__________________________________ (Title)

_________________________

(Date) To the Partners of ______________________________________

and the Peer Review Committee of the ______________________________________________ (Date)

We have reviewed the system of quality control for the accounting and auditing practice of ______________________________________ (the firm) in effect for the year ended ________________________. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants. As a part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures. The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the firm’s compliance therewith based on our review. The nature, objectives, scope, limitations of, and the procedures performed in a System Review are described in the standards at www.aicpa.org/prsummary. As required by the standards, engagements selected for review included ____________________ ___________________________________________________________________________________________________________________________________________________________. In our opinion, the system of quality control for the accounting and auditing practice of _________________________________ in effect for the year ended ________________________ has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with deficiency(ies) or fail. _________________________________ has received a peer review rating of ____________________. Goode, Newman and Associates, LLP


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http://www.aicpa.org/prsummary

Question 2

Refer to the firm’s representation letter at Attachment J. What errors, if any, has the firm made?


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Submission of Documents to Administering Entity

At this point, you should be able to complete all remaining relevant peer review documents. All applicable sections of the SRM must be completed in unambiguous details. Care should be taken to ensure that the SRM is consistent with other review documents. An inconsistent or otherwise poorly completed SRM almost always results in a call from a technical reviewer and, often, a delay in the presentation of the review to a report acceptance body. In addition, you should complete the remaining portions of the Team Captain Checklist. Perform a final review of all peer review documents and provide solutions to the questions below.

Question 1

What documents should the team captain submit to the Maryland Association of CPAs?

Question 2

When should you submit the documents to the Maryland Association of CPAs?


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08/2012 1

INFORMATION REQUIRED FOR SCHEDULING REVIEWS

FIRM INFORMATION

Name: Flacco & Rice LLP

Address: 1101 Russell Street

City: Baltimore State: MD Zip: 21230

REVIEW DUE DATE (date that all review documents must be completed and submitted to the administering

entity): June 30, 20x5

REVIEW YEAR-ENDi (the peer review will address the one-year period ended this date): December 31, 20x4

Please provide the following information concerning your review. When making inquiries about your review, please refer

to the following review number: 599172

1) Firm Nameii (if different from above): __________________________________________________________

2) Mailing Address (if different from above):

Address:

City: State: Zip:

Please indicate the reason for the different address:

Change of office address. Other (specify)

3) Managing Partneriii Mr. Ms.

Jebediah Flacco

First MI Last

Is the Managing Partner an AICPA Member? Yes No

AICPA Member Number: 1256347

Telephone (410) 555-4502

Fax (410) 510-7288

Email [email protected]

Attachment A

35

08/2012 2

4) Contact person for peer review mattersiv: Same as Managing Partner

Mr. Ms.

First MI Last

Is the Peer Review Contact an AICPA Member? Yes No

AICPA Member Number:

Telephone ( )

Fax ( )

Email

5) Total number of partners: 4

6) Total number of partners who are AICPA members: 4

7) Total number of CPAs, including partners 7

8) Total number of personnelv, including partners 14

9) If the firm belongs to one or more Associationsvi of CPA firms or a non-CPA owned entity with which it is closely

aligned, add code below.

(Use codes on pages 10 and 11):

If you marked 0099, please indicate the name of the association(s) below. If not, proceed to the next question:

36

08/2012 3

10) Does your firm perform, or does it expect to perform, engagements under the following standards:

With periods ending during the peer review year? Yes No

Statements on Auditing Standards (SASs)

Audits

International Standards

International Standards on Auditing, Assurance Engagements and related Services (ISAs), or any

other standards issued by the International Auditing and Assurance Standards Board (IAASB)

Any other international standards on audit, assurance or related services

Any international accounting or reporting standards (except for International Financial Reporting

Standards-IFRS)

Standards of the Public Company Accounting Oversight Board (US) (for engagements that are not defined as issuers by the PCAOB [e.g., non-SEC issuers])

PCAOB Auditing Standards

PCAOB Attestation Standards

Statements on Standards for Accounting and Review Services (SSARS)

Reviews of financial statements

Compilations of financial statements with disclosuresvii

Compilations of financial statements that omit substantially all disclosuresviii

Statements on Standards for Attestation Engagements (SSAEs)

With report dates during the peer review year?

Examinations of prospective financial statements

Compilations of prospective financial statements

Agreed-upon procedures of prospective financial statements

With periods ending during the peer review year?

Examinations of Service Organizations (SOC 1 Reports)ix

Examinations of written assertions Reviews of written assertions

Other agreed-upon procedures

Other

Any types of engagements referenced above that would subject the accountant to SEC

independence rules

37

08/2012 4

If all your “Yes” answers were due to your expectation to perform the engagements during the peer review year, and

after the peer review year and your submission of this form, you find that your firm did not perform any of the expected

engagements, please contact your administering entity.

Similarly, if all your “No” answers were due to your expectation not to perform engagements during the peer review

year, and after the peer review year and your submission of this form, you find that the firm did perform any of these

engagements, please contact your administering entity.

If all engagement types above are answered “No”, did your firm perform any engagements listed in question 10)

during the last twelve months? Yes No. If no, skip to question 20). If yes, please indicate the following and

proceed to question 11.

Period end date of the firm’s last issued report:

Type of engagement:

NOTE: See webpage “Peer Reviews—System Review vs. Engagement Review” aicpa.org/prsystoreng for the

most up-to-date information on what engagements would require your firm to have a System Review vs. an

Engagement Review

11) Determination of Type of Review for types of engagements performed: Refer to the Note above for guidance on

whether your firm is required to have a System Review or is eligible to have an Engagement Review

aicpa.org/prsystoreng Firms eligible to have an Engagement Review may elect to have a System Review. If you

are uncertain about how to classify any engagements, consider consulting AICPA Professional Standards or your

reviewer.

Please indicate the type of review you would prefer:

Engagement Review System Review

12) Is your firm required, or does it expect to be required, to be registered with and inspected by the Public Company

Accounting Oversight Board (PCAOB) during the peer review year (excluding non-SEC issuer broker-dealersx)?

Yes No If yes, please indicate the following:

a) Total number of SEC issuers for which the firm prepared audit reports during the preceding calendar year, as

most recently reported to the PCAOB:

b) Total number of SEC issuers for which the firm played a substantial role in the audit during the preceding

calendar year, as most recently reported to the PCAOB:

13) Does the firm perform, or expect to perform, during the peer review year, any audits that are not defined as issuers by

the PCAOB (i.e., non-SEC issuers), under professional standards issued by the PCAOB? Yes No

If yes, please indicate the total number of engagements: # Eng

14) If your firm is a provider of quality control materials (QCM), does your firm perform the peer review of any of the users

of those materials? Yes No

38

08/2012 5

If you responded “Yes” to questions 12), 13) or 14), your firm is required to have its review administered by the

National Peer Review Committee (NPRC)xi at the AICPA, and your firm will be subject to the NPRC’s

administrative fee structure. Information related to this fee structure can be found at: aicpa.org/nprcfees

15) If your firm is not required to have its review administered by the NPRC, does it choose to do so?

Yes No If yes, your firm will be subject to the NPRC’s administrative fee structure.

If you are uncertain about your answers to questions 12) through 15) or their impact, please contact the NPRC at

[email protected] or (919) 402-4502.

16) Formation of review team.

Firm on Firm—The reviewed firm selects a qualified firm to perform the review. The following is a link to the AICPA

Online Reviewer Search peerreview.aicpaservices.org/resume/default.asp

Committee Appointed Review Team (only available for Engagement Reviews)—The entity administering your

firm’s review will select the review team. Please complete EXHIBIT 3.

Association Formed Team— An association of CPA firms that your firm belongs to, as indicated in question 9), will

select the review team. (The association must be authorized by the AICPA Peer Review Board to arrange and carry

out peer reviews for its member firms.) Please indicate the code of the association (from question 9)) that will select

the review team

17) If your firm is having a firm-on-firm or association formed review, indicate the estimated date of the commencementxii

of your review: 5/21/20x5 . This date must be prior to the due date on page 1.

If the review team has already been chosen and the timing of the review established, please complete EXHIBIT 1. If

you do not know the members of the review team or the timing of the review, you do not have to complete EXHIBIT 1

at this time. However, the review team must be approved before the commencement of the review.

Please ensure that you have referred to the webpage “Peer Reviews—System Review vs. Engagement Review” aicpa.org/prsystoreng for the most up-to-date information on what engagements would require your firm to have a System Review vs. an Engagement Review (see “NOTE” on page 4). If your firm is eligible to have and elects to have an Engagement Review, skip to question 20).

39

08/2012 6

18) If your firm is required to have a System Review, please check all the appropriate boxes for those practice areas or

industries in which the firm performed (or expects to perform) a non-SEC issuer engagement that would require a

System Review, with a period ending during your firm’s peer review year (or a report date during your firm’s peer

review year, for financial forecasts and projections), regardless of the percentage of your firm’s practice in that area.

005 Audits Under Government Auditing Standards (Yellow Book)

(Excluding Single Audit Act (A-133) Engagements)

013 Single Audit Act (A-133) Engagements Under Government Auditing Standards (Yellow Book)

007 Audits of Federally Insured Depository Institutions subject to the FDICIA (with more than $500 million or

greater in total assets at the beginning of its fiscal year)xiii

222 HUD Programs

320 School Districts

325 State & Local Governments

380 Defined Contribution Plans—Full & Ltd Scope (excluding 403(b) plans)

383 Defined Contribution Plans—Full & Ltd Scope (403 (b) plans only)

390 Defined Benefit Plans—Full & Ltd Scope

400 ERISA Health & Welfare Plans

403 ESOP Plans

405 Other ERISA Plans

440 Carrying Broker-Dealersxiv

19) Check the first box for any practice areas or industries in which the firm performed (or expects to perform) a non-SEC

issuer engagement that would require a System Review (see “NOTE” on page 4), with a period ending during your

firm’s peer review year (or a report date during your firm’s peer review year, for financial forecasts and projections),

regardless of the percentage of your firm’s practice in that area or industry.

Also check the second box for any practice areas or industries in which over ten percent of the firm’s practice hours

for these engagements (non-SEC engagements that would require a System Review, with periods ending during your

firm’s peer review year, or a report date during your firm’s peer review year for financial forecasts and projections) are

concentrated. If your firm does not/will not have any practice areas or industries comprising 10% or more of the firm’s

practice hours for these engagements during the peer review year, check the second box for the practice areas or

industries of the firm’s three largest engagements fitting the same criteria.

Your firm may also practice in practice areas or industries that are not listed; that information is not required. If none of

the listed practice areas/ industries applies to your practice, select “None of the above practice areas/ industries

apply”.

40

08/2012 7

Box 1

All practice areas/

industries that meet

criteria discussed

above

Box 2

>10% of practice hours

that meet above criteria

or 3 largest

engagements that meet

above criteria

110 Agricultural, Livestock, Forestry & Fishing

115 Airlines

120 Auto Dealerships

125 Banking

145 Casinos

150 Colleges and Universities

155 Common Interest Realty Associations

165 Construction Contractors

175 Credit Unions

180 Extractive Industries—Oil and Gas

185 Extractive Industries—Mining

186 Federal Student Financial Assistance Programs

190 Finance Companies

195 Franchisors

200 Property and Casualty Insurance Co.

205 Government Contractors

210 Health Maintenance Organizations

216 Hospitals

217 Nursing Homes

230 Investment Companies and Mutual Funds

240 Life Insurance Companies

250 Mortgage Banking

260 Not-for-Profit Organizations (including voluntary health &

welfare organizations)

268 Personal Financial Statements

295 Real Estate Investment Trusts

300 Reinsurance Companies

308 Rural Utilities Service Borrowers

310 Savings and Loan Associations

312 Service Organizations (SOC 1 Reports)



330 Telephone Companies

335 Utilities

450 Non-Carrying Broker-Dealers

None of the above practice areas/ industries apply

41

08/2012 8

20) Are there any special concerns that we should be aware of when scheduling your review (e.g., significant

merger/demerger situations)? Yes No. If yes, please explain.

21) Does your firm or do the members of your firm perform any accounting or auditing engagements through a joint

venture, partnership or corporate arrangement with another accountant or accounting firm? Yes No. If yes,

briefly describe those engagements and the relationships with the parties outside your firm.

22) Do the partners of the firm and the firm itself have licenses to practice public accounting in the state(s) where the firm

practices as required by applicable state boards of accountancy? Yes No. If no, please explain.

23) Are there any limitations or restrictions on the firm or its personnel’s current ability to practice public accounting that

were imposed by any regulatory, monitoring or enforcement body (such as Department of Labor, Government

Accountability Office, SEC, PCAOB, State Board of Accountancy, AICPA Professional Ethics, AICPA Joint Trial Board

etc.)? Yes No. If yes, please explain.

24) Since the end of the firm’s last peer review, has the firm sold any portion of its non-attest practice to a non-CPA

owned entity and/or entered into service arrangements for staff, office facilities, equipment, etc. with a non-CPA

owned entity? Yes No. If yes, please provide with whom such agreements have been entered, the date that the

agreements were entered into, the details of such agreements and what services within the practice were sold.

42

08/2012 9

FACILITATED STATE BOARD ACCESS

The AICPA has implemented a process called Peer Review Facilitated State Board Access (FSBA), which facilitates the

voluntary disclosure of peer review results via a secure, state board/licensing body (hereinafter referred to as BOA)

limited-access web site. The goal of this voluntary process is to create a nationally uniform system through which CPA

firms can satisfy BOA peer review information submission requirements, increase transparency, and retain control over

their peer review information. EXHIBIT 2 contains information about making your firm’s peer review results available to

the BOA in the state in which your firm’s main office is located, if applicable, and expanding access to other BOAs where

peer review is mandatory and access to peer review results is not prohibited, Please see EXHIBIT 2 for this information

and to make your selection(s), if applicable. Please note that by signing this form, your firm acknowledges that it

has read the terms outlined in EXHIBIT 2 and has made its selections, if applicable.

ACKNOWLEDGEMENT

We have reviewed this scheduling form, exhibits, and the related webpage “Peer Reviews – System Reviews vs.

Engagement Reviews” at aicpa.org/prsystoreng. To the best of our knowledge and belief, the information

submitted herewith is true and correct. We agree to be bound by the policies and procedures for the peer review

program, including those that may restrict our right to resign from the program once a peer review has

commenced. In particular, we understand that resignations during the course of a peer review will not be allowed

except as set forth in Standards of the AICPA Peer Review Program Manual. We also understand that if all the

partners of the firm who are members of the AICPA resign while a peer review is in process, the firm will not be

un-enrolled from the program until the review is completed.

CHANGE TO PEER REVIEW PROCESS

We understand that new guidance requires that the Matter for Further Consideration (MFC) form be signed by the

reviewed firm representative, which is the sole practitioner, managing partner or the peer review contact. Thus if the

reviewed firm representative is the peer review contact, that contact should be familiar with matters and MFC forms and

authorized to sign on behalf of the firm.

We understand that due to the increased use of technology, some peer review communications may be sent electronically

and that, as described at aicpa.org/prmfccomm, the AICPA will require that certain peer review documents be

completed electronically. Firms will be able to comply with the requirement to submit documents electronically using a

secure website provided by the AICPA Peer Review Program. If we are unable to access the internet to comply with the

electronic form requirements, we understand our Reviewer may assist us with this process.

Signature: �� Date: April 12, 20x5

Please return this form and any applicable exhibits within 30 days to your administering entity. Contact details

for your administering entity can be found on the AICPA.org website at: aicpa.org/pradmin

43

08/2012 10

CODES FOR ASSOCIATIONS OF CPA FIRMSxv

Name Code

ACPA International 0003

Affiliated Conference of Practicing Accountants 0048

AG Exchange 0067

AGN International North America 0010

Alliance of Practicing CPAs, The 0044

Alliott Group North America 0068

American Association of Hispanic CPAs 0055

Apparel and Textile Accountants & Consultants 0056

Associated Regional Accounting Firm 0006

Auto Team America 0057

Baker Tilley International 0031

BKR International 0020

BR International 0066

California Group of Accounting Firms 0008

Centerprise Advisors 1020

Century Business Services 1010

Community Banking Advisory Network (CBAN) 1026

CORPACCT CPA Affiliates 0030

CPA Affiliates of Virginia, Ltd 0027

CPA Associates International, Inc. 0011

CPA Auto Dealer Consultants Association (CADCA) 1027

CPA Management Systems, Inc t/a INPACT Americas 0013

CPA Manufacturing Services Association (MSA) 1028

CPAConnect 0071

CPAmerica International 0001

CPA–USA Association (formerly NACPAF) 0019

CPSASNET.COM 0046

Crowe Horwath International 0038

DFK International, USA 0014

Enterprise Worldwide 0059

Firm Foundation 1029

Foundation for Accounting Practitioners, Inc. 0033

GMN International 0037

Grant Thornton International 1030

HLB USA Incorporated 0035

IGAF Polaris 0016

INAA Group, International Network of Accountants and 0064

Infinet Resources 0062

Integra International, Inc. 0052

International Association of Practicing Accountants 0040

JHI 0041

Kreston International 0042

KS International 0060

Lone Star Management Group 0017

McGladrey Alliance 0043

MGI North America, LTD 0036

Moore Stephens North America, Inc. 0045

Morning Star 0054

44

08/2012 11

MSI Global Alliance 0058

National Alliance of Auto Dealer Advisors 1031

National Association of Black Accountants 0007

National Association of Investment 0061

National Conference of CPA Practitioners 0021

Network of Accountants 0028

NEXIA International 0039

Not-for-Profit Services Associations (NSA) 1032

NR International 0032

Pannell Kerr Forster 0050

PKF North American Network 1034

Praxity AISBL 0029

Premier International Associates 0073

Real Estate & Construction Advisors Association (RECA) 1033

RSM McGladrey 1015

Russell Bedford International 0074

SC International 0002

Southern Association of Accounting Firms 0022

Texas Management Group 0024

BDO Seidman Alliance, The 0049

Florida CPA Group, The 0053

Leading Edge Alliance 0065

Moss Adams Connection, The 0051

Ruck Network, Inc., The 0070

Southern & Western Accounting Group, The 0023

Virginia Group of CPA Firms, Inc., The 0025

Vestin Group, Inc. 1025

Western Association of Accounting Firms 0026

Other 0099

CODES FOR NON-CPA OWNED ENTITIESxvi

Name Code

American Express Tax and Business Services 1005

UHY Advisors 1020

CBIZ, Inc. 1010

RSM McGladrey Services 1015

Vestin Group Inc. 1025

45

08/2012 12

EXHIBIT 1

INFORMATION FOR REVIEW TEAMS FORMED BY QUALIFIED FIRMS

(INCLUDING FIRMS WITHIN ASSOCIATIONS)

FIRM NAME: Flacco & Rice, LLP REVIEW NO: 599172

Please provide, or have the team captain/review captain provide, the following information concerning the review team

that will perform your review. This information will be used to evaluate whether the review team has the necessary

qualifications to perform this review.

The review team may not perform the review until the reviewed firm has received acknowledgement of this form

from the entity administering the review. If there are any changes in the date of the exit conference, or the names

of the individuals who will serve on the review team, the administering entity should be informed, in writing if

possible, of the changes. This is necessary to minimize subsequent questions about the conduct of the review or

the qualifications of the review team members.

REVIEWING FIRM INFORMATION

1) Name of Reviewing Firm: Goode, Newman and Associates, LLP

2) AICPA Firm Number: 1098547

3) Mailing Address: 212 Citizens Bank Way, Philadelphia, PA 19148

4) Review Dates:

Commencement Date: 5/21/20x5

Exit Conference Date: 5/23/20x5

TEAM/REVIEW CAPTAIN INFORMATION

5) Team/Review Captain: Mr. Ms.

James P. Newman

First MI Last


Telephone: (215) 555-4929

Fax: (215) 555-7813

Email: [email protected]

46

08/2012 13

TEAM MEMBER 1 INFORMATION

6) Team Member: Mr. Ms.

Susan

First

N. Spector

MI Last

Firm Name: Goode, Newman and Associates, LLP


Email: [email protected]



First MI Last

Firm Name:


Email:



First MI Last

Firm Name:


Email:

RELATIONSHIPS OR TRANSACTIONS1

9) Do any arrangements exist between the reviewed firm, the reviewing firm or the review team members to jointly share

fees, office facilities, professional staff, continuing education programs, marketing, selling services, consultation, etc.

with each other or with a non-CPA owned entity? Yes No. If yes, please describe the arrangements in detail.

10) Is the reviewed firm a member of a network under Ethics Interpretation 101-172? Yes No –If yes:

a) Enter the association code: _______

b) Are any of the review team members employed by or owners of a firm that is a member of the same network?

Yes No --If yes, the reviewed firm should reference PRP Standards Interpretation 26-2, which states that the

owners and employees of network firms are not considered to be independent with respect to other firms within the

same network. As a result, those individuals should be excluded from the review team.

�� 1 Reference AICPA Peer Review Standards and Interpretations for guidance on when independence may be impaired.

2 Questions regarding Ethics Interpretation 101-17, including whether a firm is a member of a network, should be directed

to the ethics hotline at [email protected] or 888-777-7077.

47

08/2012 14

11) Are there any other relationships or transactions between the reviewed firm, the reviewing firm and the review team

members that may give rise to a conflict of interest or the appearance of independence being impaired?

Yes No. If yes, please describe the relationships or transactions.

12) Did your firm use an individual outside your firm or another firm to perform monitoring (for instance, engagement

quality control review, post-issuance review, inspection procedures, etc.), a consulting review, a quality control

document review, preliminary quality control procedures review or pre-issuance review on an accounting or auditing

engagement for your firm for the year immediately preceding or during the current peer review year?

Yes No

If yes, please provide the following information:

Name of Individual Firm Name Description of Service Year-End of

Engagement(s)

In the Interpretations titled “Independence, Integrity, and Objectivity” of the revised Standards, independence would

be considered impaired for purposes of being able to perform a firm’s peer review (whether as a team captain, review

captain, or team member) for anyone also performing monitoring (for instance, engagement quality control review,

post-issuance review, inspection procedures, etc.), a consulting review, a quality control document review, preliminary

quality control procedures review or pre-issuance review on an accounting or auditing engagement for the firm for the

year immediately preceding or during the current peer review year. This would also apply if another individual from the

reviewer’s firm were performing such services. The only exception is if those services were performed for the year

immediately following the previous peer review year-end. Thus, performing those services in the year immediately

preceding or during the current peer review year would impair independence for peer review purposes. There are

various permutations and interpretations of this guidance which could still be applicable to your firm.

Please carefully consider your choice of a peer reviewer and/or reviewing firm, and consult your peer

reviewer or administering entity for additional guidance on this matter as necessary, so that your peer

reviewer and/or reviewing firm’s independence is not impaired.

13) Did your firm obtain any quality control materials (QCM) (e.g., audit programs, checklists, practice aids, etc.) that are

integral to your firm’s system of quality control from the reviewing firm, an entity related to the reviewing firm or an

association? (Please consult with your peer reviewer if you’re unsure whether your firm’s QCM were obtained from an

entity related to the reviewing firm) Yes No N/A

If yes:

a) Please list the firms or related entities or associations that provide the externally developed QCM used at your

firm.

b) Is there an independent peer review report that covers the specific QCM used by your firm? (Evidenced by a

QCM peer review report and an acceptance letter) Yes No If no, please contact the AICPA at

[email protected] to determine whether the review team is independent to perform your firms’ peer

review.

48

08/2012 15

ACKNOWLEDGEMENT: We have reviewed this information and the related webpage “Peer Reviews – System Reviews

vs. Engagement Reviews” at aicpa.org/prsystoreng. To the best of our knowledge and belief, the information

submitted herewith is true and correct. We agree to be bound by the policies and procedures for the peer review

program, including those which may restrict our right to resign from the program once a peer review has

commenced. In particular, we understand that resignations during the course of a peer review will not be allowed

except as set forth in Standards of the AICPA Peer Review Program Manual. We also understand that if all the

partners of the firm who are members of the AICPA resign while a peer review is in process, the firm will not be

un-enrolled from the program until the review is completed.

Signature: �� Date: April 12, 20x5

Please return this form and any applicable exhibits within 30 days to your administering entity. Contact details for

your administering entity can be found on the AICPA.org website at: aicpa.org/pradmin

49

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51

1/1/20x4 through 12/31/20x4

Name Position Date of hire

Total Years of

Experience

1 Phoebe Buffay Staff 1/5/20x4 1

2 Richard Dunningham Staff 6/1/20x3 2

3 Ross Geller Staff 9/8/20x2 2

4 Ralph Kramden Staff 6/4/20x4 1

5 Laverne Wagner Staff 12/1/20x2 2

6 Joey Tribbiani In charge 6/1/20x0 5

7 Shirley Stewart In charge 5/4/20x1 4

8 Edna Garrett Senior 9/1/19x7 7

9 Louie De Salma Manager 6/1/20x4 6

10 Edward Corton Manager 6/1/19x6 9

11 Phillip Grummond Partner 6/1/19x5 12

12 Blaire Warner Partner 11/1/19x1 13

13 Jeb Flacco Partner 2/9/19x0 15

14 Roy Rice Partner 2/9/19x0 15

Flacco & Rice, LLP

Personnel Performing A&A Services

Attachment C

52

00-8 JAN 2014 Quality Control Policies and Procedures—Firms With Two or More Personnel 4401

AICPA Peer Review Program Manual PRP §4400.01

PRP Section 4400

Quality Control Policies and Procedures

Documentation Questionnaire for Firms

With Two or More Personnel1

.01 Statement on Quality Control Standards (SQCS) No. 8, A Firm's System of Quality Control (AICPA, Profes-

sional Standards, QC sec. 10) (effective as of January 1, 2012), supersedes all existing SQCSs, establishes standards,

and provides guidance for a CPA firm’s responsibilities for its system of quality control. The SQCS deals comprehen-

sibly with a firm’s quality control practices in the areas of audits, reviews, compilations, and attestation engagements.

It places an unconditional obligation on a firm to establish a system of quality control designed to provide it with rea-

sonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and

legal requirements, and that the reports issued by the firm or engagement partners are appropriate in the circumstanc-

es. The significant aspects of SQCS No. 8 include the following:

SQCS No. 8 defines unconditional requirements through the use of the words must or is required and pre-

sumptively mandatory requirements through the use of the word should.

SQCS No. 8 identifies the following six elements of quality control to be included in a firm’s quality control

system of and addressed in its policies:

— Leadership Responsibilities for Quality Within the Firm (the “Tone at the Top”)

— Relevant Ethical Requirements

— Acceptance and Continuance of Client Relationships and Specific Engagements

— Human Resources

— Engagement Performance

— Monitoring

SQCS No. 8 requires a firm to communicate and document its quality control policies and procedures. The

extent of the documentation is based on the size, structure and nature of the firm’s practice.

SQCS No. 8 recognizes the importance of a quality-oriented internal culture by requiring firms to establish

policies assigning its management responsibilities for ensuring that commercial considerations do not over-

ride the quality of work performed and for addressing personnel performance evaluation, compensation, and

advancement to demonstrate the firm’s overarching commitment to quality.

SQCS No. 8 provides detailed guidance on independence and requires a written confirmation of compliance

with independence requirements from all personnel at least annually.

SQCS No. 8 provides detailed guidance on client acceptance and continuance, and it requires documentation

of the resolution of significant issues.

SQCS No. 8 provides detailed guidance on engagement supervision and review, engagement documentation,

and consultation policies and procedures.

SQCS No. 8 requires policies and procedures for addressing and resolving differences of opinions, including a

requirement that reports must not be released until the difference of opinions are resolved. Such policies and

1 The term personnel is defined in Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (AICPA, Profes-

sional Standards, QC sec. 10), as all individuals who perform professional services for which the firm is responsible, whether or not they are CPAs

(including leased and per diem employees who devote at least 25 percent of their time at the reviewed firm in performing audits, reviews, compila-

tions, or attestation engagements, or those professionals who have the partner-level and manager-level responsibility for the overall supervision or

review of such engagements).

Attachment D

53

4402 System Reviews 00-8 JAN 2014

PRP §4400.02 Copyright © 2014, American Institute of Certified Public Accountants, Inc.

procedures should enable a member of the engagement team to document that member’s disagreement with

the conclusions reached after appropriate consultation.

SQCS No. 8 uses the term engagement quality control review, including its objective, and requires firms to

establish criteria to determine which engagements are to be subject to an engagement quality control review.

SQCS No. 8 requires performance of monitoring procedures that are sufficiently comprehensive to enable the

firm to assess compliance with all applicable professional standards and regulatory requirements and the

firm’s quality control policies and procedures. Firms are required to assign responsibility for monitoring to a

person of appropriate authority and are required to evaluate deficiencies and communicate recommendation

for remedial action.

SQCS No. 8 requires policies and procedures for dealing appropriately with complaints and allegations of

noncompliance with professional standards or with the firm’s system of quality control.

.02 This section of the manual contains a questionnaire, to be provided to the peer reviewer prior to the com-

mencement of the review, that provides documentation of the firm’s policies and procedures for its system of quality

control. Firms that have developed a comprehensive quality control document (as contemplated by SQCS

No. 8) that was effective for the peer review year should provide that document to the peer reviewer. However,

under certain circumstances, the team captain may still request that a firm complete this questionnaire (and attach the

quality control document). For instance, this could be requested if the team captain’s consideration of the firm’s quality

control document indicates that it may not adequately address all the required elements of a system of quality control in a

level of detail appropriate to the firm. This could also be requested if the team captain’s consideration of the quality con-

trol document indicates that a summary of the document would assist the team captain’s review of it.

.03 Firms utilizing this questionnaire as the primary documentation of their system of quality control (to assist in

complying with the documentation requirements of SQSC No. 8) should indicate its date of adoption (which cannot be

prior to the date of completion of the questionnaire). If this questionnaire was not in effect for the peer review year, the

firm should also attach previously completed questionnaire(s) that were effective for the peer review year, which could

be the questionnaire completed for the firm’s last peer review. Firms should keep this questionnaire updated for ongoing

changes in their respective practice structure as they would for a quality control document.

.04 This questionnaire has been developed for firms with two or more personnel. Section 4300, Quality Control

Policies and Procedures Documentation for a Sole Practitioner With No Personnel, is a questionnaire that has been

developed for sole practitioners with no personnel. This questionnaire has been adapted from the requirements of

SQSC No. 8 and from the nonauthoritative AICPA Practice Aid, Establishing and Maintaining a System of Quality

Control for a CPA Firm’s Accounting and Auditing Practice. The AICPA practice aid provides illustrative examples

of four hypothetical firms (multioffice firm, single office firm, sole practitioner firm, and an alternative practice struc-

ture firm). Firms should understand the requirements of SQCS No. 8 and consider the practice aid when designing

and maintaining the applicable quality control policies and procedures. The practice aid can be purchased from

cpa2biz.com.

.05 The reviewed firm should respond directly with “Yes,” “No,” or “N/A” answers and describe, where appro-

priate, the policies and procedures it has in effect that relate to the questions asked. Where appropriate, the firm

should make reference to any firm documents that describe those policies and procedures in more detail. Examples of

such documents might be personnel manuals, audit and accounting manuals, a quality control document or manual,

and firm forms and checklists. A “No” answer to a question does not necessarily indicate a problem with the firm’s

system of quality control; however, it may require additional explanation of applicable procedures that the firm has

implemented in the circumstances. A firm’s quality control policies and procedures should be sufficient based on the

size, structure, and nature of its practice for it to obtain reasonable assurance of complying with professional stand-

ards.

.06 When determining the extent of documentation required for this questionnaire, the reviewed firm should

consider that “Yes” and “No” answers may assist in identifying the control objective, but it would not typically satisfy

the required documentation of how the control was met. Documenting how controls are met is an integral component

of documenting the quality control policies and procedures and is expected to be included if the questionnaire is

meant to satisfy the requirements of SQCS 8 and be used as the firm’s quality control document. The reviewed firm

should document the control objective and the details of the policies and procedures.

54



.07 There may be arrangements where certain portions of the reviewed firm’s system of quality control reside at

or operate in conjunction with the system of quality control of a non-CPA owned entity with which the reviewed firm

is closely aligned through common employment, leasing of employees, equipment, facilities, and so on, or other simi-

lar arrangements. This would generally include policies and procedures relating to the following elements of quality

control: (1) relevant ethical requirements, (2) human resources, and (3) monitoring of the elements noted in (1) and

(2). If this arrangement applies to the reviewed firm, in addition to section 4400, complete PRP section 5100, Quality

Control Policies and Procedures Documentation Questionnaire Supplement for non-CPA Owned Entities Closely

Aligned With a CPA Firm.

55



.08

AICPA Peer Review Program

QUALITY CONTROL POLICIES AND PROCEDURES DOCUMENTATION QUESTIONNAIRE

FOR FIRMS WITH TWO OR MORE PERSONNEL2

Firm Prepared By Date

This questionnaire may not include all the policies and procedures applicable to a firm’s practice. It should be tailored

to provide documentation of pertinent policies and procedures applicable to the six elements of quality control. Some

portions of the questionnaire will require a specific response; a “Yes,” “No,” or “N/A” answer may be appropriate in

other instances. Some questions may require a brief description of applicable procedures in place. If necessary, addi-

tional documentation should be provided. Where appropriate, make reference to any documents that describe those

policies and procedures in more detail. Examples of such documents might be audit and accounting manuals and

forms and checklists used in the practice.

This questionnaire does not address specific requirements of membership in the AICPA Governmental Audit

Quality Center or the AICPA Employee Benefit Plan Audit Quality Center. Additionally, there may be other

requirements for firms engaged to perform audit services for an issuer to comply with the Public Company

Accounting Oversight Board and the Securities and Exchange Commission (SEC) and for those firms perform-

ing engagements subject to Government Auditing Standards.

If the firm is closely aligned with a non-CPA owned entity, and if certain portions of the elements of (1) relevant

ethical requirements, (2) human resources, or (3) monitoring reside at or operate in conjunction with the sys-

tem of quality control of the non-CPA owned entity, the firm must also complete PRP section 5100, Quality

Control Policies and Procedures Documentation Questionnaire Supplement for Non-CPA Owned Entities Closely

Aligned With a CPA Firm.

Yes No N/A Comments

A. Leadership Responsibilities for Quality Within the Firm

(“Tone at the Top”)

Quality control policies and procedures are required to be

documented and communicated to personnel, including the

message that each individual has a personal responsibility for

quality and to be familiar with and to comply with these poli-

cies and procedures.

1. Does the firm have a written quality control document in

effect for the peer review year?

a. If “yes,” submit a copy of the firm’s quality control

document in effect for the peer review year to your

team captain. Completion of this questionnaire may

not be required if the quality control document com-

prehensively describes the policies and procedures es-

tablished and maintained for each element of quality

control as contemplated by SQCS No. 8. However,

under certain circumstances the team captain may still

request that this questionnaire be completed (and the

quality control document attached).

2 The term personnel is defined in SQCS No. 8 as all individuals who perform professional services for which the firm is responsible, whether or

not they are CPAs (including leased and per diem employees who devote at least 25 percent of their time at the reviewed firm in performing audits,

reviews, compilations, or attestation engagements, or those professionals who have the partner-level or manager-level responsibility for the overall

supervision or review of such engagements).

Flacco & Rice LLP Jeb Flacco April 30, 20x5

56



Yes No N/A Comments

b. If “no,” will this questionnaire provide the primary

documentation of the firm’s policies and procedures

for its system of quality control?

If “yes,” indicate date of adoption (cannot be prior to

the date of completion of this questionnaire).

Considering the date of adoption, was this question-

naire in effect for the peer review year?

If “no,” also attach previously completed question-

naire(s) that were effective for the peer review year, if

any. This could be the questionnaire completed for the

firm’s last peer review, which the firm should be

maintaining as documentation of their system of qual-

ity control.

If “no,” where are policies and procedures documented?

2. Has the firm developed or adopted other quality control

materials?

If “yes,” describe those materials:

3. Describe how the firm communicates its policies and pro-

cedures to personnel.

4. Describe how the firm stresses the importance of obtaining

feedback on its system of quality control from its person-

nel.

We used Widely Used QCM

to assist us with performing engagements.

Polices and procedures are communicated to

professionals upon hire during the new hire orientation and periodically as

needed such as amendments to policies and procedures. Communication

is verbal and written.

Flacco & Rice stresses that feedback on our system of quality

control is an important part of our process and encourages personnel to

notify management of their views or concerns regarding quality control

matters.

We have been using

these questionnaires to

document our QCPP

forward our responses

to the newest

questionnaire each

year.

1/1/20x4

since the implementing

SQCS 8. We roll

57



Yes No N/A Comments

Quality control policies and procedures support an internal

culture based on the recognition that quality is essential in

performing engagements.

5. Describe how the firm’s management assumes ultimate re-

sponsibility for the firm’s system of quality control.

6. Describe how the firm assigns management responsibili-

ties so that commercial considerations do not override the

quality of the work performed.

7. Describe how the firm assigns operational responsibility

for its system of quality control to personnel who have

sufficient and appropriate experience and ability to identi-

fy and understand quality control issues and to develop

appropriate policies and procedures, as well as the neces-

sary authority to implement those policies and procedures.

8. Describe how the firm designs procedures addressing per-

sonnel performance evaluation, compensation, and ad-

vancement to demonstrate the firm’s overarching com-

mitment to the objective of the system of quality control.

9. Describe how the firm devotes resources for the develop-

ment, communication, and support of its quality control

policies and procedures.

The managing partner and other partners in the firm demonstrate the

importance of quality by their actions.

A committee of partners evaluates client relationships and engagements to

ensure that commercial considerations are not place ahead of the firm’s

commitment to quality control.

The managing partner takes operational responsibility for the system of

quality control. This individual is highly qualified to perform these

functions and is given the latitude to develop and revise policies and

procedures as necessary.

The firm’s performance evaluation, compensation and advancement

policies and procedures do not place commercial considerations ahead of

the quality of work performed. Personnel who demonstrate a commitment

to quality are rewarded.

At least annually, the managing partner reviews the firm’s quality control

policies and procedures to determine if they are appropriate and operating

effectively.

58



Yes No N/A Comments

B. Relevant Ethical Requirements

Quality control policies and procedures provide the firm with

reasonable assurance that the firm and its personnel comply

with relevant ethical requirements when discharging profes-

sional responsibilities. Relevant ethical requirements include

independence, integrity, and objectivity. These requirements

include regulations, interpretations, and rules of the AICPA,

state CPA societies, state boards of accountancy, state stat-

utes, the U.S. Government Accountability Office, and any

other applicable regulators.

1. Describe how the firm documents and communicates its

policies and procedures for relevant ethical requirements

to its personnel.

2. Does the firm have access to current guidance materials

regarding the applicable independence, integrity, and ob-

jectivity requirements?

a. If “yes,” describe the source of such material (such as

access through computer software databases contain-

ing professional and regulatory literature, by a sub-

scription to the AICPA Professional Standards loose-

leaf service, other services pertaining to the firm’s

practice, or other means).

b. If “no,” describe how the firm obtains reasonable as-

surance that it is aware of the applicable independ-

ence, integrity, and objectivity rules.

3. Does the firm employ someone responsible for providing

guidance, answering questions, monitoring compliance,

and resolving matters with respect to independence, integ-

rity, and objectivity?

a. If “yes,” identify.

b. If “no,” describe how the firm handles these matters.

All personnel have ready access to the ethical requirements to which the

firm is subject. The firm maintains a copy of those ethical requirements in

the firm’s library and personnel also have access online.

Ethical requirements under the AICPA Code of Professional

Conduct and relative to applicable regulators are maintained in the

firm’s electronic library. Access to the electronic library is granted

to all professional personnel.

Jeb Flacco, Partner

59



Yes No N/A Comments

4. Does the firm have a system for identifying all services

performed for clients, including services performed by en-

tities closely aligned through common employment and

other means, and evaluating whether any of those services

might impair independence?

a. If “yes,” identify the relevant policies and procedures.

b. If “no,” describe how the firm differentiates the types

of services performed.

5. Does the firm have policies and procedures in place to

ensure the independence of the firm as required by the

AICPA, state CPA societies, state boards of accountancy,

state statute, the SEC, and other regulatory bodies, if ap-

plicable?

a. If “yes,” how is this information documented (for

example, memorandum, manuals, and so on)?

b. If “no,” how does the firm obtain reasonable assur-

ance that its personnel are aware of the pertinent regu-

lations, interpretations, and rulings of regulatory

agencies that impact the firm?

6. Does the firm provide its personnel with the firm’s list of

clients and any related entities and inform them on a time-

ly basis as to any changes in the firm’s clients and any re-

lated entities to which independence policies apply?

a. If “yes,” describe how the firm communicates this in-

formation to its personnel.

b. If “no,” describe how the firm ensures that all person-

nel are aware on a timely basis of those entities to

which independence policies apply.

Flacco & Rice currently uses a software package to track all services

provided to all clients.

Annual review of

clients listing from

each professional is

required and signed.

Client

Acceptance and Continuance forms provided by Widely Used QCM

are completed for each engagement

Human Resource Manager

is charged with obtaining annual independence surveys from all

professional staff. Listing of clients is obtained from the software

package referenced above.

60



Yes No N/A Comments

7. Does the firm obtain written confirmation, upon hire and

on an annual basis, of compliance with its policies and

procedures on independence from all personnel required to

be independent by relevant requirements? (If “no,” the

firm may not be in compliance with SQCS No. 8, which

requires written confirmation, at least annually.)

If “no,” explain.

The firm, when acting as principal auditor, confirms the inde-

pendence of another firm performing parts of an engagement.

8. Does the firm have any engagements where it acts as prin-

ciple auditor or accountant and another firm of CPAs is

engaged to perform segments of the engagement?

a. If “yes,” are written confirmations obtained regarding

the other firm’s independence with respect to audit

engagements and either written or oral confirmations

obtained for review or attestation engagements?

If “yes,” describe the form and content of the confir-

mation.

9. Has the firm identified circumstances for which documen-

tation of the resolution of independence, integrity, and ob-

jectivity questions is required?

a. If “yes,” describe such circumstances and where the

documentation is maintained.

b. If “no,” describe how the firm handles these matters.

10. Has the firm found it necessary within the last year to con-

sult with individuals outside the firm on independence, in-

tegrity, or objectivity concerns?

If “yes,” describe.

Sign written confirmation or by e-mail.

Request for Proposals or

Qualifications (RFPs or RFQs). Written documentation in the

proposals and qualifications were provided.

61



Yes No N/A Comments

11. Does the firm review unpaid fees from clients to ascertain

whether any outstanding amounts may impair the firm’s

independence?

a. If “yes,” answer the following questions:

i. Who does this?

ii. How often is it done?

iii. Have there been any such situations during the

year under review?

b. If “no,” describe how the firm monitors its independ-

ence with respect to clients with unpaid fees.

12. Does the firm inform its personnel of financial or other re-

lationships that may impair independence and that may be

prohibited?

a. If “yes,” do those relationships include the following?

i. Business relationships with clients or with non-

clients that have investor or investee relationships

with clients

ii. Loans to and from clients, including loans from

financial institution clients

iii. Family members who are employed by clients, or

who are in director, officer, manager, or audit-

sensitive positions with clients, including not-for-

profit entities

iv. Past-due fees for professional services

v. Accounting or advisory services that have evolved

into situations where the firm has assumed some of

the responsibilities of client management

vi. Direct and material investments in clients

Engagement Partner and/or Committee of

Partners

At least annually upon

engagement start

None noted.

62



Yes No N/A Comments

Before a member [ET sec. 92 par. .20] or his or her firm per-

forms nonattest services for accounting and auditing clients*,

the member should determine that the requirements described

in Ethics Interpretation No. 101-3, “Performance of Nonattest

Services,” under rule 101, “Independence” (AICPA Profes-

sional Standards, ET sec. 10, par. .05), have been met. In cas-

es where the requirements have not been met with respect to

nonattest services rendered during the period of the profes-

sional engagement or the period covered by the financial

statements, independence would be impaired.

13. Does the firm provide nonattest services to accounting and

auditing clients?

a. If “yes,” did the firm meet all the requirements of

Ethics Interpretation No. 101-3 for each accounting

and auditing client for which nonattest services were

performed?

b. Does the firm establish an understanding, including

appropriate documentation of the understanding, with

each client regarding the following?

i. Objectives of the engagement

ii. Services to be performed

iii. Client’s acceptance of its responsibilities

iv. Member’s responsibilities

v. Any limitations of the engagement

If the firm is a member of a network [ET sec. 92 par. .21],

the firm should determine that the requirements described in

Ethics Interpretation No. 101-17, “Networks and Network

Firms,” under Rule 101, “Independence” (AICPA, Profes-

sional Standards, ET sec. 101, par. .19), have been met.

14. Is the firm a network firm [ET sec. 92 par. .22]?

a. If “Yes,” answer the following:

i. Did the firm meet all of the requirements of Eth-

ics Interpretation No. 101-17?

ii. Describe how the firm monitors its independence

with respect to financial statement audits, re-

views, and other attest engagements performed

by other members of the network.

* A member who performs a compilation engagement for a client should modify the compilation report to indicate a lack of independence if the

member does not meet all of the conditions set out in Ethics Interpretation No. 101-3, “Performance of Nonattest Services,” under Rule 101,

Independence (AICPA, Professional Standards, ET sec. 101 par. .05), when providing a nonattest service to that client (see Statement on Standards

for Accounting and Review Services [SSARS] No. 19, Compilation and Review Engagements [AICPA, Professional Standards, AR sec. 80]), for

compilation engagements performed on financial statements for periods ending before December 15, 2010, see SSARS No. 1, Compilation and

Review of Financial Statements (AICPA, Professional Standards), which was superseded by SSARS No. 19.

63



Yes No N/A Comments

15. Describe the procedures the firm performs in evaluating

other possible threats to independence and objectivity, in-

cluding the familiarity threat that may be created by using

the same senior personnel on an audit or attest engagement

over a long period of time, and appropriate actions taken

to eliminate those threats or reduce them to an acceptable

level by applying safeguards (that is, periodically rotate

partners, conduct concurring reviews, require approval of

engagement personnel by another partner, require prompt

reporting of circumstances and relationships that create a

threat or breach of policy, monitoring of procedures, consult

professional literature, consult AICPA Ethics Hotline,

consider ET sec. 100.01, A Conceptual Framework for

AICPA Independence Standards (AICPA, Professional

Standards), consider withdrawing from the engagement,

and so on).

16. Describe the firm’s policies and procedures for withdraw-

ing from an engagement if effective safeguards to reduce

threats to independence to an acceptable level cannot be

applied (consulting within the firm, with legal counsel or

other parties).

C. Acceptance and Continuance of Client Relationships and

Specific Engagements

Quality control policies and procedures for acceptance and

continuance of client relationships and specific engagements

provide the firm with reasonable assurance that the firm and

its personnel will undertake or continue relationships and

engagements only where it has considered the integrity of the

client, is competent to perform the engagement, can comply

with the legal and ethical requirements, and has reached an

understanding with the client regarding the services to be

performed.

1. Describe how the firm documents and communicates its

policies and procedures to personnel for accepting pro-

spective clients and the continuance of current clients and

specific engagements.

Flacco & Rice requires prompt reporting of circumstances

and relationships that create a threat or breach of policy.

The committee of partners will review on a case-by-case basis, as issues

arise, if effective safeguards to reduce threats to independence to an

acceptable level cannot be applied. In most cases, legal counsel is

obtained.

A Client Acceptance or Continuance checklist, which is provided by

Widely Used QCM, is required to be completed for each engagement.

64



Yes No N/A Comments

2. Do the firm’s policies and procedures include obtaining

and evaluating the following relevant information before

accepting or continuing a client relationship?

a. The nature and purpose of the services to be provided

to the client and management’s understanding thereof

b. The identity of the client’s principal owners, key

management, related parties, and those charged with

governance

c. The nature of the client’s operations, including its

business practices, from sources such as annual re-

ports, interim financial statements, reports to and from

regulators, income tax returns, and credit reports

d. Information obtained from third parties (bankers, fac-

tors, attorneys, credit services, and others who have

business relationships with the entity)

e. Information concerning the attitude of the client’s

principal owners, key management, and those charged

with governance toward such matters as aggressive

interpretation of accounting standards and internal

control over financial reporting

f. The risk of providing services in highly specialized or

regulated industries

g. Engagements that require an inordinate amount of

time to complete relative to the available resources of

the firm

h. Communicating with the predecessor accountant or

auditor when required by professional standards

i. Conducting background checks of the business, its of-

ficers, and so on

j. The risk of providing services to significant clients or

to other clients for which the firm’s objectivity or the

appearance of independence may be impaired

k. Describe any other procedures the firm performs in

making acceptance and continuance of client deci-

sions or variations in procedures based on factors

such as the nature and size of the engagement and

prior experience with the client.

3. Does the firm document the necessary communications

with predecessor accountants and auditors, including in-

quiries regarding the nature of any disagreements and oth-

er events, and whether evidence of “opinion shopping”

exists?

In certain instances the engagement partner and committee of

partners will discuss client acceptance and continuance based on

nature, size and required technical expertise of the engagement.

65



Yes No N/A Comments

a. If “yes,” where is the documentation maintained?

b. If “no,” describe how the firm documents compliance

with paragraph .13 of AU-C sec. 300, Planning an

Audit (AICPA, Professional Standards).

4. When issues have been identified, and the firm decides to

accept or continue the client relationship or a specific en-

gagement, how does the firm document that the issues

were resolved?

The firm evaluates whether the engagement can be completed

with professional competence; undertakes only those engage-

ments for which the firm has the capabilities, resources, and

professional competence to complete; and evaluates, at the end

of specific periods or upon occurrence of certain events,

whether the relationship should be continued.

5. Does the firm evaluate whether it has obtained or can rea-

sonably expect to obtain the knowledge and expertise nec-

essary to perform the engagement, including relevant

regulatory or reporting requirements, prior to accepting the

engagement?

a. If “yes,” describe how this decision is reached and

where it is documented.

b. If “no,” describe how the firm determines that it can

perform the engagement.

6. Does the firm specify conditions that require evaluation of

a specific client or engagement, obtaining relevant infor-

mation to determine whether the relationship should be

continued, and establishing a specific time period to make

that evaluation?

In the planning section of the engagement working

papers.

Although this is not common, any documentation of

resolution or overcoming of specific identified factors are

documented in the planning section of the working papers

For Yellow Book audits,

the previous 3 years of CPE for each audit participant

is documented in the acceptance. Engagement

acceptance is evaluated on a case-by-case basis

by the engagement partner.

66



Yes No N/A Comments

a. If “yes,” do the conditions include the following?

i. Significant changes in the client, such as a major

change in senior client personnel, ownership, advi-

sors, nature of its business, or its financial stability

ii. Changes in the nature or scope of the engage-

ment, including requests for additional services

iii. Changes in the composition of the firm, such as

the loss of and inability to replace key personnel

who are particularly knowledgeable about a spe-

cialized industry

iv. The decision to discontinue services to clients in

a particular industry

v. The existence of conditions that would have

caused the firm to reject the client or engagement

had such conditions existed at the time of the ini-

tial acceptance

vi. The client’s delinquency in paying fees

vii. Engagements for entities in highly specialized or

regulated industries

viii. Engagements for entities in which there may be

substantial doubt about the entity’s ability to con-

tinue as a going concern

ix. Engagements for entities in the development stage

x. Engagements in which the client has ignored prior

recommendations, such as those that address defi-

ciencies in internal control

b. If “no,” describe how the firm obtains assurance that

it is not continuing a relationship that should be dis-

continued.

7. Does the firm designate individuals to evaluate and make

a recommendation as to whether a client or specific en-

gagement should be accepted or continued?

If “yes,” indicate individual(s).

a. If “yes,” do the individuals do the following?

i. Evaluate all the information obtained about the

client or engagement and make a recommen-

dation about whether the client or engagement

should be accepted or continued

None.

Engagement Partner

67



Yes No N/A Comments

ii. Document the decision and have an individual at

an appropriate level approve the decision

b. If “no,” describe how the decision to accept or con-

tinue a client or engagement is made.

The firm obtains an understanding with the client regarding

the services to be performed.

8. Does the firm document its understanding with the client

regarding the services to be performed by obtaining either

an engagement letter for all engagements, thus minimizing

the risk of misunderstandings regarding the nature, scope,

and limitation of the services to be performed, or by doc-

umenting the understanding in a memorandum?

If “no,” describe how the firm obtains assurance that its

understanding is in agreement with the client’s under-

standing of the work to be performed.

The firm establishes procedures on withdrawal from an en-

gagement or from both the engagement and the client rela-

tionship.

9. Describe the firm’s procedures for withdrawal from an en-

gagement or from both the engagement and the client rela-

tionship.

10. Did the firm consider discontinuing any audit and account-

ing client relationships during the year under review but

decide to continue?

If “yes,” explain.

The Committee of partners will evaluate instances or events

that require consideration regarding withdrawal from an engagement or

relationship. In most instances, legal counsel is obtained.

68



Yes No N/A Comments

D. Human Resources

Quality control policies and procedures for human resources

provide the firm with reasonable assurance that it has suffi-

cient personnel with the capabilities, competence, and com-

mitment to ethical principles necessary to perform its

engagements in accordance with professional standards and

regulatory and legal requirements and to enable the firm to

issue reports that are appropriate in the circumstances.

Personnel must have integrity and possess the appropriate

characteristics to enable them to perform competently.

1. Does the firm have an individual responsible for the firm’s

hiring and human resources management, including evalu-

ation of personnel needs, establishment of hiring objec-

tives, and providing final approval?


b. If “no,” describe the following:

i. How this is accomplished.

ii. How the firm determines that it has adequate staff

to perform its professional engagements.

2. Does the firm have hiring criteria?

a. If “yes,” briefly describe the following:

i. The attributes, achievements, and experiences

desired in entry-level and experienced personnel

to enable them to perform competently within the

firm. Highlight any items that represent require-

ments for hire.

ii. How the firm evaluates personal characteristics

such as integrity, competence, and motivation of

new hires.

Human Resource Manager

The firm hires college graduates for entry

level positions. When recruiting experienced professionals, the

firm prefers to hire CPAs with three or more years of public

accounting experience.

All new hires are evaluated by managers and

partners for integrity, competence and motivation on a case-

by-case basis.

69



Yes No N/A Comments

iii. Any additional information the firm requires for

experienced hires,

such as background checks and

inquiries about any outstanding regulatory ac-

tions.

b. If “no,” describe how the firm determines that the

personnel hired are appropriate for the position they

are hired to fill.

3. Does the firm have criteria for determining which individ-

uals will be involved in the interviewing and hiring pro-

cess?

a. If “yes,” describe how these individuals are trained.

b. If “no,” describe how the firm determines who is ap-

propriate for this role.

The firm assigns personnel (including partners) based on the

knowledge, skills, and abilities required in the circumstances

and the nature and extent of supervision needed.

4. Does the firm have policies and procedures to ensure person-

nel

assigned to engagements have the degree of technical

training and proficiency required in the circumstances con-

sidering the nature and extent of supervision to be provided?

a. If “yes,” answer the following:

i. Who is responsible for the assignment of person-

nel

to engagements, including high-risk engage-

ments and industries?

For CPAs, the firm performs a background

check and reference verification.

All preliminary interviews are conducted by HR

Manager and follow up interviews are conducted by

the managing partner as well as lead audit

department manager.

HR Manager upon hire. In

addition, the engagement partner will assign engagement to

most qualified.

70



Yes No N/A Comments

ii. What factors are used to determine how person-

nel

are assigned to engagements (for example,

engagement size and complexity, specialized ex-

perience or expertise required, personnel avail-

ability and involvement of supervisory personnel,

timing of the work to be performed, continuity

and rotation of personnel, opportunities for on-

the-job training, previous knowledge, skills, and

abilities [competencies] gained through other ex-

perience, situations where independence or objec-

tivity concerns exist)?

b. If “no,” describe how the firm determines that the

personnel

assigned to engagements are qualified to

perform the engagements.

5. Does the firm specify the knowledge, skills, and abilities

(competencies) the practitioner in charge of the firm’s ac-

counting, auditing, or attestation engagements (the partner

or other person who is responsible for supervising those

types of engagements and signing or authorizing someone

to sign the accountant’s report on such engagements)

should possess to fulfill his or her engagement responsibil-

ities? Do such competencies for the practitioner-in-charge

include the following:

a. An understanding of the role of the firm’s system of

quality control and the AICPA Code of Professional

Conduct

b. An understanding of the performance, supervision,

and reporting aspects of the engagement

c. An understanding of the applicable accounting, audit-

ing, or attestation professional standards, including

those standards directly related to the industry in

which a client operates

d. An understanding of the industry in which a client op-

erates, including the industry’s organization and oper-

ating characteristics, to identify the areas of high or

unusual risk associated with an engagement, and to

evaluate the reasonableness of industry-specific esti-

mates

e. Skills that indicate sound professional judgment

Staff qualifications as well

as availability. Highly technical areas are assigned to the

professional with the competency to complete the assigned

engagement. In addition, continuing CPE training in the area is

mandatory.

We would, but we

don’t have any such

engagements with high

or unusual risk or in

specialized industries.

71



Yes No N/A Comments

f. An understanding of how the organization is depend-

ent on or enabled by information technologies, and

the manner in which information systems are used to

record and maintain financial information

Personnel participate in general and industry-specific con-

tinuing professional education (CPE) and professional de-

velopment activities that enable them to satisfy responsi-

bilities assigned and fulfill applicable CPE requirements of

the AICPA, state CPA societies, state boards of accountancy,

and other regulators.

6. Does the firm have an individual or individuals responsi-

ble for the firm’s CPE and professional development ac-

tivities and who maintain(s) CPE records and course

materials for personnel?


b. If “no,” describe how the firm monitors its CPE and

professional development activities and determines

that all personnel are in compliance with applicable

CPE requirements.

7. Do personnel assigned to audit and accounting engage-

ments take courses related to those engagements?

a. Provide an approximation of the type of CPE taken.

Self-study courses %

In-house training program

(i) Developed by the firm %

(ii) Obtained from outside vendors %

State society or AICPA programs %

Other programs %

b. Describe how the firm assures personnel participate in

CPE related to accounting and auditing assignments,

including specialized industries.

8. Are all personnel in compliance with the professional edu-

cation requirements of the board(s) of accountancy in

state(s) where they are licensed, the AICPA (if applicable),

the state CPA society (if applicable), and Government Au-

diting Standards—the Yellow Book (if applicable)?

Human Resources Manager

5

10

25

50

10

The engagement

partner will ensure that all professional staff on their

audits have the required CPE for specialized

industries.

72



Yes No N/A Comments

If “no,” provide the following information:

a. Explain instances of noncompliance.

b. Attach a list of personnel

not in compliance, and

indicate the firm’s plan for correcting the situation.

9. Does the firm have an orientation and training policy for

new hires?

a. If “yes,” briefly describe the policy.

b. If “no,” describe how the firm trains new hires.

10. Does the firm inform personnel

of changes in accounting

and auditing standards, independence, integrity, and objec-

tivity requirements and the firm’s technical policies and

procedures with respect to them (for example, by distrib-

uting technical pronouncements and holding training

courses on recent changes and areas noted by the firm as

needing improvement)?

a. If “yes,” briefly describe.

b. If “no,” describe how the firm determines that per-

sonnel are informed of changes in professional stand-

ards.

All new hires are

required to take software training, code of conduct

training, and orientation of firm policies and

procedures. This is conducted by the HR manager.

The firm informs personnel of

changes in accounting and auditing standards, as well as

independence, integrity and objectivity requirements, by requiring

attendance to an annual accounting and auditing update which

encompasses these changes.

73



Yes No N/A Comments

11. Does the firm encourage personnel to pass the Uniform

CPA Examination and to participate in other professional

development activities, such as taking graduate-level

courses, becoming members of professional organizations,

serving on professional committees, and writing for pro-

fessional publications?

If “yes,” briefly describe.

If “no,” briefly explain why.

Personnel selected for advancement have the qualifications

necessary to fulfill the responsibilities they will be called on

to assume.

12. Does the firm have different levels of responsibility within

the firm (for example, partner, manager, senior)?

If “yes,” briefly describe.

13. Does the firm have an individual responsible for ad-

vancement and termination decisions?

a. If “yes,” describe who is responsible for the follow-

ing:

i. Establishing evaluation and advancement criteria

for personnel at all levels, including development

of evaluation forms. Also, briefly describe

whether criteria are documented (for example, in

a personnel manual).

All professional staff are encouraged to

pass the Uniform CPA examination. Time off is provided so that

employees may study and take the exam. In addition, the firm also pays a

$1,000 bonus for professional staff that pass the exam and receive the

CPA designation.

Yes. Partner, Manager, Senior, In-charge

and Staff.

Managing Partner and Audit Partner.

74



Yes No N/A Comments

ii. Making advancement and termination decisions,

including identifying responsibilities and re-

quirements for evaluation at each level and decid-

ing who will prepare evaluations.

iii. Development of the evaluation form for each

professional classification, including partners.

b. If “no,” describe how these decisions are made and

implemented.

14. Does the firm periodically evaluate the performance of

personnel and advise them of their progress in the firm?


i. Who is responsible for performing the evaluation?

ii. How often are the evaluations performed?

iii. Are standard evaluation forms used?

If “no,” briefly describe whether they are docu-

mented by another means.

b. If “no,” describe how firm personnel are informed of

their performance and progress in the firm.

Managing Partner

and Audit Partner.

HR Manager

Managing Partner and Audit Partner semi-annually.

Engagement Partner is required to perform evaluations if the

engagement exceeds 150 hours.

At least semi--annually.

75



Yes No N/A Comments

15. Does the firm counsel personnel regarding their progress

and career opportunities by doing the following:

a. Periodically summarizing and reviewing with person-

nel the evaluation of their performance, including an

assessment of their knowledge, skills and abilities

(competencies), and progress with the firm that in-

cludes a discussion regarding performance, future ob-

jectives of the firm and the individual, assignment

preferences, and career opportunities

b. Periodically evaluating owners, including whether they

possess the knowledge, skills, and abilities (competen-

cies) necessary to enable them to be qualified to per-

form the firm’s accounting, auditing, or attestation

engagements (for example, by means of counseling,

peer evaluation or self-appraisal)

E. Engagement Performance

Quality control policies and procedures for engagement per-

formance are designed to provide the firm with reasonable

assurance that engagements are consistently performed in ac-

cordance with professional standards and regulatory and legal

requirements, and that the firm or the engagement partner

issues reports that are appropriate in the circumstances.

1. Does the firm develop its own quality control materials

(QCM) (for example, an audit and accounting manual,

standardized forms, checklists, templates, practice aids,

tools, questionnaires and the like) to assist with engagement

performance? If “yes,”

a. have you provided the review team with a list of the

types of QCM developed by the firm?

b. are such materials used as an integral part of the

firm’s system of quality control?

c. are the firm’s QCM used for a specified purpose (for

example, sampling or risk templates) or a specific in-

dustry (for example, homeowners’ associations)?

d. describe the firm’s quality control policies and proce-

dures for the following:

i. developing and maintaining the QCM (for exam-

ple, making updates and revisions).

ii. ensuring the reliability of the QCM.

76



Yes No N/A Comments

iii. ensuring the suitability of the QCM for the firm’s

practice.

2. Does the firm use third-party QCM (for example, an audit

and accounting manual, standardized forms, checklists,

templates, practice aids, tools, questionnaires, and the like)

to assist with engagement performance? If yes,

a. have you provided the review team with a list of all

providers or sources of QCM used by the firm?

b. are such QCM used as an integral part of the firm’s

system of quality control?

c. are the provider’s QCM used for a specified purpose

(for example, sampling or risk assessment templates) or

a specific industry (for example, homeowners’ associa-

tions)?

d. describe the firm’s quality control policies and proce-

dures for the following:

i. adopting, updating and modifying the third-party

QCM.

ii. ensuring the reliability of the QCM.

iii. ensuring the suitability of the QCM for the firm’s

practice.

e. have the specific third party QCM used by the firm

undergone a QCM review (been “peer reviewed”)

(Copies of current QCM review reports and acceptance

letters can be obtained either from the AICPA website at

http://www.aicpa.org/InterestAreas/PeerReview/Com

munity/NationalPRC/Pages/QCMReviewResults.aspx

or from the reviewed provider)?

These are used on all

engagements

QCM is used for every

aspect of all

engagements.

The Audit Partner for each engagement determines if any

updates or revisions to the QCM used for that specific

engagement are necessary.

The Managing Partner reviews the most recent peer review

report for the QCM before continuing the relationship with the

provider. The individual audit partners review the QCM as

part of their review to determine the QCM is up to date and

appropriate for their engagement.

The audit partner for each individual engagement reviews the

QCM to be used immediately subsequent to client acceptance/

continuance procedures to ensure the QCM used for the

engagement is appropriate given the client's in industry, etc.

77



Yes No N/A Comments

i. If “yes,” have you furnished a copy of the provid-

er’s QCM review report to the team captain or, if

the provider has elected to have its QCM review

documents posted to the AICPA’s website, di-

rected the team captain toward the website?

ii. If “no,” identify the QCM used by the firm that

have not undergone a QCM review.

The engagement is planned to meet professional, regulatory,

and firm requirements.

3. Does the firm provide its personnel with documented poli-

cies and procedures for planning audit and accounting en-

gagements?

a. If “yes,” indicate where that documentation is located

(for example, in an audit and accounting manual).

b. If “no,” briefly describe the procedures the firm per-

forms in planning audit and accounting engagements,

including the information obtained and considered

and the nature, timing, and extent of partner involve-

ment in the planning process. Also, describe any vari-

ations in those procedures based on factors such as the

nature and size of the engagement and prior experi-

ence on the engagement.

4. Do the firm’s policies and procedures for planning include

the following:

a. Assigning responsibility for planning the engagement.

If “yes,” indicate who is responsible.

b. Developing or updating background information on

the client and the engagement.

If “yes,” indicate who is responsible.

c. Developing a proposed work program tailored to the

specific engagement

d. Considering staffing requirements and the need for

specialized knowledge

Planning checklist appearing in Widely Used QCM

must be completed for all engagements.

Engagement Partner

Engagement Partner

78



Yes No N/A Comments

e. Considering the economic conditions affecting the

client or its industry and their potential effect on the

conduct of the engagement

f. Considering risks, including fraud, and how they may

affect the procedures to be performed

g. Preparing a budget that allocates a sufficient amount

of time so the engagement will be performed in ac-

cordance with professional standards and the firm’s

quality control procedures

h. Describe any other procedures in addition to those

covered in 2a–2g.

The engagement is performed, supervised, documented, and

reported (or communicated) in accordance with the require-

ments of professional standards, applicable regulators, and

the firm.

5. Do the firm’s policies and procedures do the following:

a. Require that a written program tailored to the specific

engagement be used on all engagements?

i. If “yes,” is someone with appropriate authority

required to review and approve the program?

If “yes,” describe how this approval is docu-

mented

ii. If “no,” describe how personnel are made aware of

the procedures to be performed on engagements.

b. Specify the form and content of working papers, such

as purchased practice aids, as well as standardized

forms, checklists, and questionnaires, that are to be

used in engagement performance evaluations?

How does the firm integrate such aids into its engage-

ments?

i. List any purchased practice aids or other forms

and checklists and describe how they have been

developed and updated; then attach the list and

indicate whether the use of each is required or

discretionary. (Note that the reviewer will want to

inspect these forms during the review.)

The Engagement Partner is required to

review and approve planning checklists and

audit programs.

Widely Used QCM product suite

Widely

Used QCM checklist, programs are required to

be completed.

79



Yes No N/A Comments

ii. If these are not used, describe the form of docu-

mentation used to determine that appropriate

work has been performed to justify the firm’s

conclusions.

c. Was the following verified through required docu-

mentation?

i. Understanding of the entity and its environment

ii. Consideration of internal control structure in

planning and performing the engagement

iii. Assessment of control risk

iv. Consideration of audit risk and materiality when

planning and performing an audit

v. Audit sampling technique

vi. Consideration of fraud in the financial statement

audit

vii. Conduct of and degree of reliance placed on ana-

lytical procedures

If “no” to any possibilities covered in items3c(i) –

3c(vii), describe how the firm determines that appro-

priate procedures were performed.

d. Does the firm have documented procedures to follow

when the firm uses other offices or correspondents for

audit or accounting engagements?

i. If “yes,” describe the form in which instructions

are given to other offices or correspondents and

the extent to which their work is reviewed, or in-

dicate where the firm’s procedures for the super-

vision and control of that work are found.

ii. If “no,” describe how the firm determines that the

work performed was appropriate.

The other offices or correspondents are given an

engagement letter with their specific responsibilities; their

work is reviewed by the engagement partner.

80



Yes No N/A Comments

e. Does the firm have procedures for documenting the

extent of engagement reviews so that the financial

statements and communications with management and

the board of directors meet professional and firm pre-

sentation and disclosure standards?

If “no,” describe how the firm determines that an ap-

propriate review was performed and that com-

munications were made in accordance with firm and

professional standards.

6. Do the firm’s policies and procedures assign responsibility

for review of all reports, financial statements, and working

papers to a reviewer who is senior (when possible) to the

preparer?

a. If “yes,” is that review designed to obtain reasonable

assurance of the following:

i. The procedures performed were consistent with

engagement planning and exceptions were appro-

priately investigated.

ii. The appropriateness of planned procedures was

reconsidered when significant changes in risk

factors were identified during the engagement.

iii. Firm-prescribed forms, checklists, questionnaires,

and purchased practice aids (as applicable) were

used in performing and reporting on the engage-

ment.

b. If “no,” describe how the firm obtains assurance that

reports, financial statements, and working papers are

appropriate.

7. Does the firm require that a partner of the firm ultimately

be responsible for each engagement (certain standards

may require partner responsibility)?

If “no,” describe who is responsible for the final approval

for issuing the accountant’s or auditor’s report.

81



Yes No N/A Comments

8. Do the firm’s policies and procedures regarding review of

reports, financial statements, and working papers, as well

as documentation of the review and completion process

provide reasonable assurance of the following:

a. All reviewers have appropriate experience, compe-

tence, and responsibility.

b. All engagements performed comply with professional

standards and firm policy.

c. Appropriate documentation is required on all en-

gagements evidencing review of reports, financial

statements, and working papers.

d. Engagement teams complete the assembly of final en-

gagement files on time.

e. Describe where and how a-d above are documented.

9. Describe the firm’s policies and procedures for main-

taining confidentiality, safe custody, integrity, accessibility,

and retrievability of engagement documentation.

10. Describe the firm’s policies and procedures for retaining

engagement documentation for a period of time sufficient

to meet the needs of the firm, professional standards, and

laws and regulations.

11. Has the firm merged with another firm since the date of its

last peer review or in the last three years?

If “yes,” answer the following questions:

a. Did the firm acquire any personnel in the merger?

b. Did the firm acquire and retain any new offices in the

merger?

If “yes,” indicate the locations of any such offices.

These steps appear in the Widely Used QCM

completion checklist, which is required to be

completed on all engagements.

All

engagement information is maintained in our paperless

system and backed up periodically. The system requires

users ID and password to access.

Working papers are retained 5 years.

82



Yes No N/A Comments

c. Have the personnel of the acquired firm adopted the

firm’s quality control policies and procedures? If

“no,” briefly describe on a separate page the plan for

integrating the acquired firm.

The firm requires that consultations take place when appro-

priate; that sufficient and appropriate resources are available

to enable appropriate consultation to take place; that all the

relevant facts known to the engagement team are provided to

those consulted; that the nature, scope, and conclusions of

such consultations are documented; and that conclusions re-

sulting from such consultations are implemented.

12. Does the firm inform personnel of its consultation policies

and procedures?

a. If “yes,” briefly describe how they are informed.

b. If “no,” describe how personnel are made aware of

what procedures to follow when they encounter areas

or situations where consultation is required.

13. Does the firm require the person ultimately responsible for

the engagement to determine the need to consult?

a. If “yes,” is that determination based on the following:

i. The materiality of the matter

ii. The experience of senior engagement personnel

in a particular industry or functional area

iii. Whether generally accepted accounting principles

or generally accepted auditing standards in the

functional area are as follows:

(a) Based on authoritative pronouncements that

are subject to varying interpretations

(b) Based on varied interpretations of prevailing

practice

(c) Developed

(d) Under active consideration by an authori-

tative body

(e) Not previously interpreted by the firm (for

example, in connection with another engage-

ment)

It is the firm’s policy that all professional personnel

seek consultation on a timely basis, within or outside

the firm, whenever uncertainty exists about the

answer to a technical question.

83



Yes No N/A Comments

(f) Describe where and how (a)–(e) above are

documented.

(g) Title of person responsible:

b. If “no,” describe who determines the need to consult.

14. Does the firm identify circumstances, including specialized

situations, when firm personnel are expected to consult?

a. If “yes,” do those circumstances include the following:

i. Application of newly issued technical pronounce-

ments

ii. Industries with special accounting, auditing, or

reporting requirements

iii. Emerging practice problems

iv. Choices among alternative generally accepted

accounting principles upon initial adoption or

when an accounting change is made

v. Reissuance of a report, consideration of omitted

procedures after a report has been issued, or sub-

sequent discovery of facts that existed at the time

a report was issued

vi. Filing requirements of regulatory agencies

b. If “no,” describe how personnel are informed of situa-

tions when they should consult.

15. Does the firm designate individuals within and outside the

firm as consultants in certain areas?

a. If “yes,” complete the following:

i. Attach a list of the individuals designated as con-

sultants, identify their specialties, and indicate

how personnel have been made aware of this in-

formation.

Documented in working papers.

Engagement Partner.

Managing Partner

for engagements

other than GAS;

Roy Rice for GAS

84



Yes No N/A Comments

ii. Describe how differences of opinion between en-

gagement personnel and specialists are resolved.

iii. Describe how the firm determines when to consult

with outside parties and with whom to consult.

iv. If, during the year of review, the firm sought ad-

vice from outside parties to resolve questions in-

volving professional standards or specialized

industry practices, describe the situation and the

outcome.

v. SEC pronouncements?

b. If “no,” describe how personnel are made aware of

whom they should consult.

16. Does the firm maintain or provide its personnel access to

adequate and current reference materials, including mate-

rials related to its clients?

a. If “yes,” do those materials include the following:

i. AICPA Professional Standards

ii. AICPA industry audit guides relevant to the

firm’s practice

iii. FASB pronouncements

iv. GASB pronouncements, Government Auditing

Standards (the “Yellow Book”), and other gov-

ernment audit guides relevant to the firm’s practice

v. SEC pronouncements

vi. Describe the means of access to i–v above.

Discussion with the Engagement Partner and

Managing Partner are conducted to resolve

differences. Any differences of opinion are to be

documented in the working papers.

On a case-by-case basis at the discretion of the

managing partner or engagement partner.

Online access through Widely Used QCM

provider.

85



Yes No N/A Comments

b. If “no,” describe how personnel are kept aware of

current professional standards related to the firm’s

clients.

17. Does the firm require documentation of consultation?

a. If “yes,” does that documentation include the following:

i. All relevant facts and circumstances

ii. References to professional literature used in the

determination

iii. Conclusions reached

iv. Signatures of engagement partner and consultant

v. Reference to the engagement working papers

vi. Describe where documentation of i-v above is

maintained.

b. If “no,” describe how the firm justifies its position on

consultation.

18. Does the firm have policies and procedures for personnel

to follow to resolve differences of professional judgment

within an engagement team? (See AU-C section 220,

Quality Control for an Engagement Conducted in Accord-

ance With Generally Accepted Auditing Standards [AICPA,

Professional Standards].)


i. Are conclusions reached appropriately docu-

mented?

If “yes,” describe where.

ii. Who is responsible for resolving such matters?

Documentation of consultation is

required in the audit working papers.

On the applicable worksheet

provided by Widely Used QCM provider

Engagement Partner.

86



Yes No N/A Comments

iii. Do the procedures allow assistants to document

their disagreement with the conclusion reached

and disassociate themselves from the resolution

of the matter?

iv. Does the policy require that the matter be re-

solved before the report is released?

v. Describe where the documentation is maintained.

b. If “no,” describe how personnel know what proce-

dures to follow in the event of a difference in profes-

sional judgment.

An engagement quality control review includes reading the

financial statements or other subject matter information and

the report and considering whether the report is appropriate.

The engagement quality control review also includes a review

of selected engagement documentation relating to the signi-

ficant judgments the engagement team made, conclusions

they reached, and discussion with the engagement partner

regarding significant findings and issues.

19. Describe the criteria the firm has established for determin-

ing whether an engagement quality control review should

be performed (include the nature of the firm’s practice, na-

ture of the engagement, unusual circumstances or risk, and

whether laws or regulations require an engagement quality

control review).

20. Does the firm have any engagements that meet the criteria

for an engagement quality control review?

a. If “no,” an engagement quality control review is not

required and the remainder of this section is not appli-

cable.

b. If “yes,” has the firm considered the following:

i. The engagement partner should not select the

engagement quality control reviewer.

ii. The engagement quality control reviewer has

sufficient technical expertise and experience.

In the audit working papers.

87



Yes No N/A Comments

iii. The engagement quality control reviewer meets

the independence requirements relating to the en-

gagements reviewed, even though the reviewer is

not a member of the engagement team.

iv. The engagement partner remains responsible for

the engagement and its performance, despite in-

volvement of the engagement quality control re-

viewer.

v. The engagement quality control review may be

conducted at various stages throughout the en-

gagement.

vi. The engagement quality control review includes a

discussion with the engagement partner about

significant findings and issues.

vii. The engagement quality control review be com-

pleted before the report is released.

viii. The engagement quality control review be docu-

mented.

ix. Before reports are released, matters that would

cause the reviewer to question the engagement

team’s judgments and conclusions are resolved.

x. Describe how and where i–ix above are docu-

mented.

F. Monitoring

Quality control policies and procedures for monitoring pro-

vide the firm and its engagement partners with reasonable

assurance that the policies and procedures related to the sys-

tem of quality control are relevant, adequate, operationally

effective, and followed.

The firm considers and evaluates, on an ongoing basis, the

design and effectiveness of its quality control policies and

procedures operation.

1. Indicate who has been assigned the responsibility for the

firm’s quality assurance process.

2. Describe how the firm determines that individuals respon-

sible for the quality assurance process have sufficient ex-

perience and authority to assume that responsibility.

Jeb Flacco, Partner

Based on prior audit experience.

88



Yes No N/A Comments

3. Describe how the firm considers the following quality as-

surance matters:

a. The need to review the relevance and adequacy of the

firm’s audit methodology for the following factors:

i. Mergers and divestitures of portions of the prac-

tice

ii. Changes in professional standards and SEC or

other regulatory requirements applicable to the

firm’s practice

iii. Results of inspections and peer reviews

iv. Review of litigation and regulatory enforcement

actions against the firm and others

v. The impact that changes in technology may have

on clients’ methods of doing business

vi. Changes in clients’ industries that affect their

operations

vii. Changes in applicable AICPA membership re-

quirements

Committee of Partners review and decide

mergers and divestitures on a case-by-case basis

Audit partners review professional

standards, A&A updates and updates on GAGAS

to ensure compliance with regulatory

requirements.

Audit

Partners review results of inspections and peer

reviews and provide corrective action plans.

Committee of

Partners review litigation and regulatory actions

against the firm on a case-by-case basis as

needed.

Committee

of partners review on a case-by-case basis as

needed.

Committee of partners review on a

Case-by-case basis

All partners are required to be

members of the AICPA. Any changes will be

reviewed by the Engagement Partner and

changes made if deemed necessary.

89



Yes No N/A Comments

b. Whether personnel have been appropriately informed

of their responsibilities for maintaining the firm’s

standards of quality

c. Compliance, effectiveness, and appropriateness of the

other elements of quality control in the firm’s practice


appropriateness of its guidance materials and any practice

aids.

4. Describe the firm’s quality control policies and procedures

to monitor that the firm’s guidance, and quality control

materials (QCM) (for example, an audit and accounting

manual, standardized forms, checklists, templates, practice

aids tools, questionnaires, and the like), are updated for

new professional pronouncements and are reliable and

suitable for the firm’s practice.

5. Describe how the firm informs and provides guidance to

its personnel regarding new professional standards, regula-

tory requirements, and related changes to firm policy or

practice aids.


effectiveness of professional development activities.

6. Who is responsible for monitoring the firm’s professional

development programs? Indicate name.

a. Does the firm accomplish the following:

i. Evaluate training programs to determine whether

they achieve their objectives.

Personnel are informed when hired and periodically

thereafter

Monitoring is performed in all years. An annual

inspection is performed in those years when a peer

review is not necessary.

Flacco & Rice uses Widely Used QCM audit guides and checklists. Each

year, all members of the audit dept. are required to updated their practice

aids on their local computers. Partners, managers, senior in-charges are

required to ensure that the latest checklists and audit programs are used in

the workpapers for each engagement

By having in-house training using verbal direction and

discussion as well as requirement to attend accounting and Auditing

updates. In addition, the firm requires 40 hours of CPE for all

professionals, including non-CPAs.

Jeb Flacco Partner and

HR Manager.

90



Yes No N/A Comments

ii. Review summaries of CPE records to track each

of its personnel’s compliance with the require-

ments of the AICPA and other regulatory bodies.

iii. Consider whether the firm’s professional devel-

opment programs should be revised based on the

results of the firm’s inspection or peer review.

iv. Solicit information from its personnel regarding

effectiveness of the firm’s training programs.

b. If “no” to any of the above describe how the firm de-

termines that its professional development programs

are appropriate.

The firm considers and evaluates, on an ongoing basis, com-

pliance with its policies and procedures and communicates

the results of the monitoring process to relevant firm person-

nel at least annually.

7. Does the firm perform timely inspections,3 postissuance

reviews of engagement working papers, reports, and cli-

ents’ financial statements for selected engagements, or

both to evaluate the firm’s compliance with its policies

and procedures as part of its monitoring process?

If “yes,” answer the following questions:

a. Does the firm assign responsibility for performing the

inspections or postissuance reviews to a partner or

manager-level individual not associated with the en-

gagement?

b. Does the firm’s inspections or postissuance reviews

include the following:

i. Establishing an approach and timetable for per-

forming the inspection or postissuance review

procedures and determining the forms and check-

lists to be used and the extent of documentation

required

ii. Performing appropriate tests of compliance with

the firm’s policies and procedures on a sample

basis

3 Paragraphs .A72–.A73 of SQCS No. 8 provides guidance for inspection and monitoring procedures for small firms with a limited number of

persons with sufficient and appropriate experience to effectively monitor compliance.

91



Yes No N/A Comments

iii. Reviewing correspondence and documentation, as

well as interviewing personnel, to determine the

firm’s compliance with its policies and procedures

regarding leadership responsibilities for quality

within the firm, relevant ethical requirements (in-

cluding independence, integrity, and objectivity),

acceptance and continuance of client relationships

and specific engagements, human resources, en-

gagement performance, and monitoring

iv. Reviewing a cross section of engagements con-

sidering the following criteria:

(a) All partners and managers with significant

accounting and auditing responsibilities

(b) Significant specialized industries with em-

phasis given to high-risk industries

(c) The size of the firm, number and geo-

graphical location of offices, and the degree

of authority

(d) Significant client engagements

(e) First-year engagements

(f) Level of service performed (that is, audit,

review, compilation, and attestation engage-

ments)

(g) Engagements for which there have been

complaints or allegations from firm person-

nel, clients, or other third parties that the

work performed by the firm failed to comply

with professional standards, regulatory re-

quirements, or the firm’s system of quality

control

(h) Engagements in which there were significant

disagreements between the quality review

partner and the engagement partner

(i) Engagements performed under Government

Auditing Standards (the Yellow Book)

(j) Engagements for employee benefit plans

(ERISA)

(k) Engagements for financial institutions

c. Does the firm summarize and communicate at least

annually to relevant engagement partners and other

appropriate individuals with the firm, including the

firm’s leadership, the monitoring process results and

any recommended changes to the firm’s policies and

procedures?

92



Yes No N/A Comments

d. Does the firm take specific corrective actions or steps

based upon the results of the monitoring process, and

does the firm follow up on such planned corrective

actions to assure compliance with its policies and pro-

cedures?

If “no,” to any item between 7a–7d, explain the firm’s ra-

tionale.

8 Does the firm, on an ongoing basis, review its compliance

with its policies and procedures regarding leadership re-

sponsibilities for quality within the firm, relevant ethical

requirements (including independence, integrity and objectiv-

ity), acceptance and continuance of client relationships and

specific engagements, human resources, engagement per-

formance and monitoring?

9. Does the firm test compliance with its policies and proce-

dures through other monitoring procedures (such as en-

gagement quality control reviews) not described in items 7

and 8?

If “yes,” describe.

10. Does the firm’s quality control policies and procedures

state that a peer review conducted under the standards es-

tablished by the AICPA substitute for the firm’s inspection

of engagement working papers, reports, and clients’ finan-

cial statements for some or all engagements for the period

covered by the peer review? (Note: A peer review does

not substitute for all monitoring procedures.) If so, de-

scribe the scope of other monitoring procedures performed

in that year:

The firm deals appropriately with complaints and allegations.

11. Does the managing partner inform personnel that they may

raise any concerns about noncompliance with professional

standards, regulatory and legal requirements, or the firm’s

system of quality control with any partner without fear of

reprisals? If “no,” describe why not.

The monitoring team will use the appropriate monitoring

checklists provided by Widely Used QCM and will cover elements of

quality control other than engagement performance. The review will

include examination of administrative files, personnel files and other

documentation.

93



Yes No N/A Comments

12. Does the firm assign a partner who is not otherwise in-

volved in the engagement to investigate complaints and al-

legations and the responses to them? If “no,” describe why

not.

The firm prepares appropriate documentation as evidence of

the operation of each quality control system element.

13. Describe how the firm documents the evidence of the op-

eration of each quality control system element (through its

summary monitoring report, electronic databases, manual

notes, checklists, and forms).

14. Describe the firm’s policies and procedures for document

retention so that those performing monitoring procedures

and peer reviews may evaluate the firm’s compliance with

its system of quality control.

G. SQCS No. 8 Implementation

1. Describe any substantial changes made to the system of

quality control as a result of implementing SQCS No. 8.

[The next page is 4501.]

Monitoring is documented

using the checklists provided by Widely Used QCM

5 years.

None noted.

94

00 2009 Managing Partner/Chief Executive Officer Interview 4751


PRP Section 4750

Managing Partner/Chief Executive

Officer Interview

.01 The objective of this interview is to assist the peer review team in gaining an understanding of the firm

leadership’s involvement with its system of quality control. The questions are designed to help the review team gain

an understanding of management’s philosophy towards and support of the quality control initiatives in the firm and

should be considered in assessing inherent and control peer review risk.

.02 The interview should occur during the planning stage or early in the peer review. This practice aid should be

completed by the firm executive who sets the tone for the firm in connection with its audit and accounting practice.

This form may be provided and completed by the appropriate person in advance of the interview to facilitate the

interview process. The team captain should review the responses with the appropriate person during the peer review.

Attachment E

95

4752 System Reviews 00 2009


Managing Partner/Chief Executive Officer Interview

(To be completed as part of an interview with the firm executive who sets the tone for the firm in connection with its

audit and accounting practice.)

Objective: The purpose of this interview is to assist the peer review team in gaining an understanding of the firm

leadership’s involvement with its system of quality control. Normally, this should occur early in the peer review. The

questions are designed to help the review team gain an understanding of management’s philosophy towards and

support of the quality control initiatives in the firm.

1. What are the most significant quality control risk(s) in the firm’s practice today, and what has the firm done

to manage those risk(s)?

Factors to consider when making this assessment:

� Firm experience for the industries served

� Firm mergers & acquisitions

� Partner involvement in the engagement

� Technology issues

� Improving the benefits of monitoring

� Staff development and turnover

� Other quality control resources

� Partner experience, number of offices, etc.

� New pronouncements requiring

consideration

� Implementation of new standards

2. Are there new clients or industries to the firm’s practice that the firm would consider to have significant risk?

If there are, what steps has the firm taken to address those risks?

Factors to consider—firm should consider the following when making this assessment:

� Consultation efforts to

understand outside regulatory

requirements and current

changes in those requirements

related to the industry

� Background considerations to better

understand the industry

� Research to obtain the appropriate practice

aids

� Other consultation efforts

Competition of clients, causing pricing to go down and the resultant pressure on engagement profitability. We manage

risks by separating the job budget and the fee. Decision to serve at less than standard rates is a business decision and

compliance with prof standards and firm policies will not be compromised by such decision. The firm has also worked

No. We don't do what we don't know how to do.

diligently to ensure that the requirements of the Clarity Standards have been addressed in engagements in which they apply.

96

00 2009 Managing Partner/Chief Executive Officer Interview 4753


3. What are the top three client relationships in the firm’s practice in terms of fees generated? How does the

firm manage the risks of economic dependency for the firm, its individual offices (if applicable), and its

partners for these relationships and other client relationships?

4. What are the most significant factors considered by the firm’s designated partners in connection with

monitoring or making changes, or both, to the firm’s system of quality control?

Factors to consider—the firm should consider the communication and monitoring vehicles for the following:

� Noncompliance with CPE

� Participation in engagement

acceptance and retention

policies

� The firm commitment to CPE

(that is, CPE mandatory attendance

vs. client conflicts, CPE

program quality, and

applicability)

� Resolving engagement issues

� Implementing new pronouncements

� Assignment of concurring partner or

preissuance reviewer on engagements

5. How do the firm’s designated responsible partners monitor and resolve issues related to difficult client

engagement situations?

Factors to consider:

� Firm conflict resolution policies

� Consultation policies

� Budget considerations vs. quality

� Firm management accessibility

� Firm management involvement with

substandard performance issues

� Response to client pressures

� Financial statement restatement and recall

issues

The top three client relationships are all state & local government engagements and, combined, they represent under 10%

of the firm's fees. No economic dependency.

Professional staff and client industry make-up.

4 A&A partners...resolved as a group.

97

4754 System Reviews 00 2009


6. How does firm management monitor and support the quality control initiatives in the firm?

Factors to consider—the firm should consider the following factors when making this assessment:

� Quality control resources

� Project management examples

� Presentations at staff meetings

� Prior completed quality control initiatives

� Rollout of new pronouncements

7. What criteria does the firm have for partner advancement and compensation in the firm, and how is this

communicated within the firm?

Factors to consider—the reviewer should consider the following when completing this question:

� The effect of a loss of a significant client on a partner’s future at the firm

� The relationship between advancement in the firm and the person’s A&A quality

� Emphasis placed on bringing in new business

� Engagement retention issues

8. Did the firm have any engagements that offered significant risk or issues during the year?

Yes No

If so, obtain background on the nature of the risk or issues and note those engagements for further consideration

as part of the engagement list provided by the reviewed firm.

Factors to consider when making this assessment:

� The size and complexity of the firm’s engagements

� The firm’s experience in the industry

� The firm’s consultation efforts with these engagements

� Write-offs incurred on these engagements

Team Captain

Date


Small group of partners and managers, which makes monitoring QC initiatives easy.

Economics (metrics) and technical qualities mainly. Communicated in partner meetings and via management training.

April 30, 20x5

James Newman

98

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Attachment F

99

00-5 JAN 2012 Staff Interview Questionnaire 4701


PRP Section 4700

Staff Interview Questionnaire

.01 The review of a CPA firm’s quality control policies and procedures require that personnel1

be interviewed.

The objective of these interviews is to provide corroborative evidence that certain policies and procedures have been

properly communicated.

.02 When soliciting information, reviewers should consider the nature of the topic, the level of the person being

interviewed, and the size of the firm.

.03 The questionnaire developed to guide the reviewer in conducting interviews is included in this section of the

manual. It should be tailored as the interviewer deems appropriate.

.04 The individuals interviewed should have varying levels of experience and background. The number of

individuals interviewed will be affected by the size and nature of the reviewed firm’s practice.

.05 There may be arrangements where certain portions of the reviewed firm’s system of quality control reside

outside the firm, such as but not limited to associations, joint ventures, non-CPA owned entities, arrangements with

other personnel outside the firm, third party developed practice aids, or other similar arrangements. This would

generally include policies and procedures relating to the following elements of quality control: (1) relevant ethical

requirements (such as independence, integrity, and objectivity), (2) human resources, and (3) monitoring of the

elements noted in (1) and (2). If this arrangement applies to the reviewed firm, the reviewer should refer to Peer

Review Program (PRP) Manual section 5300, Staff Interview Questionnaire For Non-CPA Owned Entities

Closely Aligned With a CPA Firm.

1 The term personnel refers to all individuals who perform professional services for which the firm is responsible whether or not they are CPAs

(previously referred to as professional staff) (Statement on Standards for Quality Control [SQCS] No. 8, A Firm’s System of Quality Control

(Redrafted) (AICPA, Professional Standards, vol. 2, QC sec. 10, par. .12).

Attachment G

100



.06

Staff Interview or Focus Group Session Guide

The following sets forth guidance related to staff interview or focus group sessions in the conduct of a peer review:

Objective—To enhance candid discussion with an individual staff or focus group to

� identify differences in understanding the firm’s quality control policies and procedures between the firm’s

management and its staff.

� obtain objective feedback related to the functional elements of the reviewed firm’s system of quality control.

� obtain qualitative or subjective feedback related to the firm, professional standards, or the peer review

process.

Staff Interview/Focus Group Criterion

� Focus groups are preferable to one on one

staff interviews in firms where the size of

the audit and accounting practice permits.

� If conducting focus group sessions, it is pre-

ferable to conduct two separate sessions—a

manager session and a senior session.

� Discussion leader should be a peer review

team member to enhance open and candid

discussion.

� This form, and the following questions,

should be used as a guide in conducting

individual staff interviews or focus group

sessions.

� Focus group size—Based on team captain

judgment but typically 3–5 participants from

the same peer group (that is, all managers or all

seniors).

� Partners from the reviewed firm should not

participate because this may inhibit open can-

did discussion.

Techniques for Conducting Staff Interviews or Focus Group Sessions

� Encourage an environment for open, candid discussion by the participants.

� The interviewer/discussion leader should perform the following prior to the beginning of the review:

— Consider reviewing each participant’s personnel files to better understand their background.

— Make an announcement to the participants prior to beginning the session stating

� the purpose of the session as it affects the participants, the firm, and the profession.

� that any comments or opinions expressed by the participants during the session will be

strictly confidential. Comments will be communicated to the firm, but the source of the

comments will not.

� The interviewer/discussion leader should build rapport with the group in an effort to maximize the groups’

effectiveness. This can be done by

— encouraging creative discussion.

— the discussion leader sharing self-deprecating experiences or stories.

— promoting the confidentiality aspect of the session.

101



Staff Interview/Focus Group Questions (for System Reviews commencing on or after January 1, 2009)

Office Code No.: Interviewee/Group Code:

Type of Session: Staff Interview Focus Group Session

Level of Interviewee or Focus Group:

If Focus Group, Number of Participants From The Reviewed Firm:

1. Introduction—What are the firm’s expectations with respect to quality control? What policies and procedures

does the firm have in place, and how does the firm’s management communicate and monitor these policies

and procedures related to each of the following?

� Leadership responsibilities for quality

within the firm (the “tone at the top”)

� Relevant ethical requirements

� Acceptance and continuance of client

relationships and specific engagements

� Human Resources (CPE)

� Engagement performance

� Monitoring (Firm inspections)

Consideration—Take a moment to explain each element of quality control.

2. Engagement performance—What are the most difficult aspects of performing an accounting and auditing

engagement in the firm, and how would you improve them?

Consider the following:

� How are these aspects supervised?

� Are engagements planned effectively to reduce the difficulty of these aspects? How could engage-

ments be better planned?

� How does executive management communicate their strategies to address these difficulties?

Phoebe Buffay

Staff- new hire

When staff first attends new employee training, management discusses the firm's quality control policies and procedures.

Staff seems to recall that these elements were included and seems to remember signing something that said that she had

reviewed a checklist of the quality control policies and procedures.

There is just a lot to learn in the first year. Sometimes there are complex issues that have to be researched and handled by

management and partners.

102



3. Human Resources—How do you advance in the firm?


� The quality of the evaluation process.

� The equity and basis of engagement assignments within the firm.

� Ideas to make performance reviews more effective.

4. Engagement performance (consultation)—How do you prepare for a new client or industry?


� What training does the firm offer to teach staff to improve their consultation efforts?

� How available are firm experts for consultation?

� What consultation resources are available?

� What consultation requirements are in effect, and how are the requirements communicated?

5. Engagement performance—How are difficult client engagement situations typically resolved?


� Is the staff encouraged to communicate difficult situations?

� What procedures are in place?

� Do difficult situations seem to be resolved appropriately?

� Is executive management involved in the decision process?

6. Human Resources—How do you learn your profession at the firm, and what methods work best for you?


� Types of training at the firm (on the job training, group CPE, self-study CPE).

� How interactive is the CPE?

� How would you improve the firm’s CPE?

Have to perform engagements well and within budget. In-charge/seniors/managers/partners give review notes on

engagements. Managers or partners some times discuss with staff performance or areas where staff needs to improve.

There is supposed to be written evaluations on large engagements (not sure of quantitative criteria for "large") but she

has worked on at least one job over 400 hours (in 20x4 and 20x5) and has not received a written evaluation since she

started. In order to be promoted to manager you have to pass the CPA exam.

Because staff is new, all engagements are new. Staff looks at prior year work papers and discusses the job with the

manager on the engagement. If the client or industry is new to the firm, staff will review the Widely Used QCM guides

to see if there is one specific to the industry. The engagement team (staff through partner) will have a planning meeting

to discuss any expected unusual situations.

Difficult situations are first discussed with the manager on the job. The manager would discuss with the engagement

partner to determine how best to handle.

Staff attends internally developed and externally sponsored CPE. There is also a lot of on-the-job training. Combination

of CPE and on-the-job training works best.

103



7. Monitoring—How does the firm and its staff collectively learn and improve from past engagement

experiences?


� Is there a centralized firm effort to learn from past engagements? How is this effort implemented?

How are the results of this effort summarized and communicated to the staff?



� What consultation requirements are in effect, and how are the requirements monitored by the firm’s

executives?

8. General—What improvements would you implement at the firm if you were in charge?

Consideration—Consider issues such as budgeting constraints vs. audit and accounting quality, ways to

improve client service, and efficiency considerations.

9. Relevant ethical requirements—What procedures has the firm implemented to ensure an independent rela-

tionship with its accounting and auditing clients?


� What independence training courses are provided, and has every staff person had independence

training?

� What are the independence policies and how are they communicated and monitored by executive

management?

� What consultation resources are available for independence?

� How is the staff notified about new clients? How are they asked to communicate potential

independence conflicts with these new clients?

� How often is the staff asked to make a written representation of its independence with respect to the

firm’s clients?

Team Captain

Date


Firm does internal inspections annually and sends an e-mail to all staff of the problems found and suggestions to correct

the problems.

No feasible changes recommended.

Firm sends out a list of all attest clients and staff must sign an annual independence confirmation.

May 21, 20x5

James Newman

104



PRP Section 4700

Staff Interview Questionnaire

.01 The review of a CPA firm’s quality control policies and procedures require that personnel1

be interviewed.

The objective of these interviews is to provide corroborative evidence that certain policies and procedures have been

properly communicated.

.02 When soliciting information, reviewers should consider the nature of the topic, the level of the person being

interviewed, and the size of the firm.

.03 The questionnaire developed to guide the reviewer in conducting interviews is included in this section of the

manual. It should be tailored as the interviewer deems appropriate.

.04 The individuals interviewed should have varying levels of experience and background. The number of

individuals interviewed will be affected by the size and nature of the reviewed firm’s practice.

.05 There may be arrangements where certain portions of the reviewed firm’s system of quality control reside

outside the firm, such as but not limited to associations, joint ventures, non-CPA owned entities, arrangements with

other personnel outside the firm, third party developed practice aids, or other similar arrangements. This would

generally include policies and procedures relating to the following elements of quality control: (1) relevant ethical

requirements (such as independence, integrity, and objectivity), (2) human resources, and (3) monitoring of the

elements noted in (1) and (2). If this arrangement applies to the reviewed firm, the reviewer should refer to Peer

Review Program (PRP) Manual section 5300, Staff Interview Questionnaire For Non-CPA Owned Entities

Closely Aligned With a CPA Firm.

1 The term personnel refers to all individuals who perform professional services for which the firm is responsible whether or not they are CPAs

(previously referred to as professional staff) (Statement on Standards for Quality Control [SQCS] No. 8, A Firm’s System of Quality Control

(Redrafted) (AICPA, Professional Standards, vol. 2, QC sec. 10, par. .12).

105



.06

Staff Interview or Focus Group Session Guide

The following sets forth guidance related to staff interview or focus group sessions in the conduct of a peer review:

Objective—To enhance candid discussion with an individual staff or focus group to

� identify differences in understanding the firm’s quality control policies and procedures between the firm’s

management and its staff.

� obtain objective feedback related to the functional elements of the reviewed firm’s system of quality control.

� obtain qualitative or subjective feedback related to the firm, professional standards, or the peer review

process.

Staff Interview/Focus Group Criterion

� Focus groups are preferable to one on one

staff interviews in firms where the size of

the audit and accounting practice permits.

� If conducting focus group sessions, it is pre-

ferable to conduct two separate sessions—a

manager session and a senior session.

� Discussion leader should be a peer review

team member to enhance open and candid

discussion.

� This form, and the following questions,

should be used as a guide in conducting

individual staff interviews or focus group

sessions.

� Focus group size—Based on team captain

judgment but typically 3–5 participants from

the same peer group (that is, all managers or all

seniors).

� Partners from the reviewed firm should not

participate because this may inhibit open can-

did discussion.

Techniques for Conducting Staff Interviews or Focus Group Sessions

� Encourage an environment for open, candid discussion by the participants.

� The interviewer/discussion leader should perform the following prior to the beginning of the review:

— Consider reviewing each participant’s personnel files to better understand their background.

— Make an announcement to the participants prior to beginning the session stating

� the purpose of the session as it affects the participants, the firm, and the profession.

� that any comments or opinions expressed by the participants during the session will be

strictly confidential. Comments will be communicated to the firm, but the source of the

comments will not.

� The interviewer/discussion leader should build rapport with the group in an effort to maximize the groups’

effectiveness. This can be done by

— encouraging creative discussion.

— the discussion leader sharing self-deprecating experiences or stories.

— promoting the confidentiality aspect of the session.

106



Staff Interview/Focus Group Questions (for System Reviews commencing on or after January 1, 2009)

Office Code No.: Interviewee/Group Code:

Type of Session: Staff Interview Focus Group Session

Level of Interviewee or Focus Group:

If Focus Group, Number of Participants From The Reviewed Firm:

1. Introduction—What are the firm’s expectations with respect to quality control? What policies and procedures

does the firm have in place, and how does the firm’s management communicate and monitor these policies

and procedures related to each of the following?

� Leadership responsibilities for quality

within the firm (the “tone at the top”)

� Relevant ethical requirements

� Acceptance and continuance of client

relationships and specific engagements

� Human Resources (CPE)

� Engagement performance

� Monitoring (Firm inspections)

Consideration—Take a moment to explain each element of quality control.

2. Engagement performance—What are the most difficult aspects of performing an accounting and auditing

engagement in the firm, and how would you improve them?


� How are these aspects supervised?

� Are engagements planned effectively to reduce the difficulty of these aspects? How could engage-

ments be better planned?

� How does executive management communicate their strategies to address these difficulties?

Louie De Salma

Manager

High quality is expected of all personnel. Before a financial statement or report is issued, the engagement partner reviews

it. When new employees are hired the firm's quality control policies and procedures are discussed and staff is provided

with a checklist of the polices that addresses these elements. Each year, seniors and above are required to review the

document and sign a statement saying that they have reviewed it. Annually all personnel must sign an independence

verification. Two partners are required to approve initial client or engagement acceptance decisions. Also staff is

required to discuss their CPE plan with a manager each year.

When a client has an unusual or complex transaction staff may have to consult with a couple of different partners before

a final conclusion is reached. Also, at times it is difficult to meet time budget and fee expectations.

107



3. Human Resources—How do you advance in the firm?


� The quality of the evaluation process.

� The equity and basis of engagement assignments within the firm.

� Ideas to make performance reviews more effective.

4. Engagement performance (consultation)—How do you prepare for a new client or industry?


� What training does the firm offer to teach staff to improve their consultation efforts?



� What consultation requirements are in effect, and how are the requirements communicated?

5. Engagement performance—How are difficult client engagement situations typically resolved?


� Is the staff encouraged to communicate difficult situations?

� What procedures are in place?

� Do difficult situations seem to be resolved appropriately?

� Is executive management involved in the decision process?

6. Human Resources—How do you learn your profession at the firm, and what methods work best for you?


� Types of training at the firm (on the job training, group CPE, self-study CPE).

� How interactive is the CPE?

� How would you improve the firm’s CPE?

Deliver quality work within reasonable time constraints. Very few review notes from a partner indicates a job well done.

Staff is supposed to have written evaluations at least annually, however for the past couple of years, the partners have

allowed general performance discussions. There is not much emphasis on actual written engagement evaluations, as

engagement review notes are a good indicator of performance. Develop and manage client relationships.

Review the specialized industries guides if there is one. Discuss with the engagement partner any unusual or high risk

areas. Take CPE if necessary.

Managers are encouraged to discuss difficult client engagement situations with the engagement partner if difficulties

arise. Staff is not aware of any situations where the firm has had to withdraw from an engagement or even issue anything

but an unqualified opinion.

Firm provides an ample amount of internally and externally developed CPE. Typically, internally developed CPE comes

from partners who attend external CPE updates and then come back to teach others the subjects internally. Also the firm

provides CPE applicable to the specialized industries in the firm (like EBP and Governmental).

108



7. Monitoring—How does the firm and its staff collectively learn and improve from past engagement

experiences?


� Is there a centralized firm effort to learn from past engagements? How is this effort implemented?

How are the results of this effort summarized and communicated to the staff?



� What consultation requirements are in effect, and how are the requirements monitored by the firm’s

executives?

8. General—What improvements would you implement at the firm if you were in charge?

Consideration—Consider issues such as budgeting constraints vs. audit and accounting quality, ways to

improve client service, and efficiency considerations.

9. Relevant ethical requirements—What procedures has the firm implemented to ensure an independent rela-

tionship with its accounting and auditing clients?


� What independence training courses are provided, and has every staff person had independence

training?

� What are the independence policies and how are they communicated and monitored by executive

management?

� What consultation resources are available for independence?

� How is the staff notified about new clients? How are they asked to communicate potential

independence conflicts with these new clients?

� How often is the staff asked to make a written representation of its independence with respect to the

firm’s clients?

Team Captain

Date


Firm performs an annual inspection in the years that they don't have a peer review. The partners meet with managers to

discuss the the findings and how the firm can correct the weaknesses and how new procedures should be implemented.

Partners then send out an e-mail with any findings and steps for improvement.

No suggestions

Each year, all personnel are provided with a list of A&A clients and are required to sign an independence verification.

May 22, 20x5

James Newman

109

00-6 JAN 2013 Employee Benefit Plan Audit Engagement Checklist (Ending on or After December 15, 2012) 20,757

AICPA Peer Review Program Manual PRP §20,700

V. EXPLANATION OF “NO” ANSWERS AND OTHER COMMENTS

The following pages are provided for your comments on all “No” answers for which a Matter for Further Considera-

tion form was not generated or to expand upon any of the “Yes” answers. All “No” answers must be thoroughly ex-

plained and reviewed with the engagement owner.

Question Disposition

Number Explanatory Comments of Comments#

# The nature of the disposition of comments may vary, such as

note “resolved” and the manner of resolution; and

note “not significant” to indicate a “No” answer is appropriate, but that the manner is not significant enough to warrant the preparation of an

MFC form.

EB104

A220

A235

A406

Report incorrect. Isolated.

Related party testing. New standards.

Insignificant

Unpaid fees. Isolated.

Attachment H

110

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Attachment I

111

April 30, 20x5

To our State CPA Society:

We are providing this letter in connection with the peer review of Flacco & Rice, LLP as of the date of this letter and for the year ended December 31, 20x4.

We understand that we are responsible for complying with the rules and regulations of state boards of accountancy and other regulators. We confirm, to the best of our knowledge and belief, that there are no known situations in which Flacco & Rice, LLP or its personnel have not complied with the rules and regulations of state board(s) of accountancy or other regulatory bodies, including applicable firm and individual licensing requirements in each state in which it practices for the year under review.

We have also provided a list of all engagements to the team captain with periods ending during the year under review whether issued or not. This list includes, but is not limited to, all engagements performed under Government Auditing Standards; audits of employee benefit plans, audits performed under FDICIA, audits of carrying broker-dealers, and examinations of service organizations SOC 1SM and SOC 2 SM engagements, as applicable. For financial forecasts or projections and agreed upon procedures, the list included those engagements with report dates during the year under review. We understand that failure to properly include engagements on the list could be deemed as failure to cooperate. We also understand this may result in termination from the Peer Review Program and, if termination occurs, will result in referral of the matter to the AICPA Professional Ethics Division for investigation of a possible violation of the AICPA Code of Professional Conduct.

We have also provided the team captain with any other information requested, including communications by regulatory, monitoring, or enforcement bodies relating to allegations or investigations in the conduct of its accounting, audit, or attestation engagements performed and reported on by the firm, whether the matter relates to the firm or its personnel, within three years preceding the current peer review year-end. In addition, there are no known restrictions or limitations on the firm’s or its personnel’s ability to practice public accounting by regulatory, monitoring, or enforcement bodies within three years preceding the current peer review year-end. We understand the intended uses and limitations of the quality control materials we have developed or adopted. We have tailored and augmented the materials as appropriate such that the quality control materials encompass guidance which is sufficient to assist us in conforming with professional standards (including the Statements on Quality Control Standards) applicable to our accounting and auditing practice in all material respects.

Sincerely,

Jebediah Flacco

Attachment J

112

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